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Note: This article sounds pretty counterintuitive in view of current slump of oil prices with a barrel of oil prices below $30 (more then 4 times drop from the highest level achieved.), In other words, instead of peak oil temporary the world is living in the regime of "oil glut" (which is a misnomer, as in reality this is an overproduction of condensate not oil, but at least low prices are real).
But the key reason for this was extremely rapid increase of production in the US and Canada in 2012-2014 fueled by cheap credit. Essentially producing "subprime oil" and in parallel the stream of junk bonds that will never be repaid (aka subprime oil as a Ponzi scheme).
At the same time this was not a revolution but a retirement party as fundamental did not change -- abundance of credit for shale oil and tar sand project was just a side effect of QE.
Having spent the last several years of my life engineering investment strategies to profit from the inevitability of Peak Oil, I’ve become obsessed with understanding the ramifications of radically different energy supply dynamics on the global economy. There are many facets to this, some obvious and some not so obvious. So when ASPO-USA Executive Director Jan Mueller approached me at the end of this year’s conference in Austin and asked for an article discussing the less obvious economic impacts of Peak Oil, I knew instantly that the topic should be the threat Peak Oil poses to the International Monetary System (IMS). This connection is critically important, but far from obvious.
I assure you that this story is very much about Peak Oil, but please bear with me, as I’ll need to start by reviewing what the IMS is and how it came about in the first place. Then I’ll explain the role energy has already played in shaping the present-day IMS, and finally, I’ll tie this back to Peak Oil by explaining why rising energy prices could very well be the catalyst that will cause the present system to fail.
At the end of World War II, many countries were literally lying in ruin, and needed to be rebuilt. It was clear that international trade would be very important going forward, but how would it work? World leaders recognized the need to architect a new monetary system that would facilitate international trade and allow the world to rebuild itself following the most devastating war in world history.
A global currency was out of the question because the many countries of the world valued their sovereignty, and wanted to continue to issue their own domestic currencies. In order for international trade to flourish, a system was needed to allow trade between dozens of different nations, each with its own currency.
A convention was organized by the United Nations for the purpose of bringing world leaders together to architect this new International Monetary System. The meetings were held in July, 1944 at the Mt. Washington Hotel in Bretton Woods, New Hampshire, and were attended by 730 delegates representing all 44 allied nations. The official name for the event was the United Nations Monetary and Financial Conference, but it would forever be remembered as The Bretton Woods Conference.
To this day, the system designed in those meetings remains the basis for all international trade, and is known as the Bretton Woods System. The system has evolved quite a bit since its inception, but its core principles remain the basis for all international trade. I’m going to focus this article on the parts of the system which I believe are now at risk of radical change, with Peak Oil the most likely catalyst to bring about that change. Readers seeking a deeper understanding of the system itself should refer to the Further Reading section at the end of this article.
It simply wouldn’t be practical for all countries to sell their export products to other countries in their own currencies. If one had to pay for wine from France in French Francs (there was no Euro currency in 1944), and then pay to import a BMW automobile in German Marks, then pay for copper produced in Chile in Pesos, each country would face an overwhelming burden just maintaining reserve deposits of all the various world currencies. The system of trade would be very inefficient. For centuries, this problem has been solved by using a single standard currency for all international trade.
Because a standard-currency system dictates that each nation’s central bank will need to maintain a reserve supply of the standard currency in order to facilitate international trade, the standard currency is known as the reserve currency. At various times in history, the Greek Drachma, the Roman Denari, and the Islamic Dinar have served as de-facto reserve currencies. Prior to World War II, the English Pound Sterling was the international reserve currency.
Throughout history, reserve currencies came into and out of use through happenstance. The Bretton Woods conference marked the first time that a global reserve currency was established by formal treaty between cooperating nations. The currency chosen was, of course, the U.S. Dollar.
The core of the system was the U.S. Dollar serving as the standard currency for international trade. To assure other nations of the dollar’s value, the U.S. Treasury would guarantee that other nations could convert their U.S. dollars into gold bullion at a fixed exchange rate of $35/oz. Other nations would then “peg” their currencies to the U.S. dollar at a fixed rate of exchange. Each nation’s central bank would be responsible for “defending” the official exchange rate to the U.S. dollar by offering to buy or sell any amount of currency bid or offered at that price. This meant each nation would need to keep a healthy reserve of U.S. dollars on hand to service the needs of domestic businesses wishing to convert money between the local currency and the U.S. dollar.
By design, the effect of the system was that each national currency was indirectly redeemable for gold. This was true because each nation’s central bank guaranteed convertibility of its own currency to U.S. dollars at some fixed rate of exchange, and the U.S. Treasury guaranteed convertibility of U.S. dollars to gold at a fixed rate of $35/oz. So long as all of the governments involved kept their promises, each nation’s domestic currency would be as good as gold, because it was ultimately convertible to gold. United States President Richard Nixon would break the most central promise of the entire system (U.S. dollar convertibility for gold) on August 15, 1971. I’ll come back to that event later in this article.
In 1959, three years after M. King Hubbert’s now-famous Peak Oil predictions, economist Robert Triffin would make equally prescient predictions about the sustainability of the “new” IMS, which was then only 15 years old. Sadly, Triffin’s predictions, like Hubbert’s, would be ignored by the mainstream.
The whole reason for choosing the U.S. dollar as the global reserve currency was that without a doubt, the U.S.was the world’s strongest credit in 1944. To assure confidence in the system, the strongest, most creditworthy currency on earth was chosen to serve as the standard unit of account for global trade. To eliminate any question about the value of the dollar, the system was designed so that any international holder of U.S. dollars could convert those dollars to gold bullion at a pre-determined fixed rate of exchange. Dollars were literally as good as gold.
Making the USD the world’s reserve currency created an enormous international demand for more dollars to meet each nation’s need to hold a reserve of dollars. The USA was happy to oblige by printing up more greenbacks. This provided sufficient dollars for other nations to hold as foreign exchange reserves, while at the same time allowing the U.S.to spend beyond its means without facing the same repercussions that would occur were it not the world’s reserve currency issuer.
Triffin observed that if you choose a currency because it’s a strong credit, and then give the issuing nation a financial incentive to borrow and print money recklessly without penalty, eventually that currency won’t be the strongest credit any more! This paradox came to be known as Triffin’s Dilemma.
Specifically, Triffin predicted that as issuer of the international reserve currency, the USA would be prone to over consumption, over-indebtedness, and tend toward military adventurism. Unfortunately, the U.S. Government would prove Triffin right on all three counts.
Triffin correctly predicted that the USA would eventually be forced off the gold standard. The international demand for U.S. dollars would allow the USA to create more dollars than it otherwise could have without bringing on domestic inflation. When a country creates too much of its own currency and that money stays in the country, supply-demand dynamics kick in and too much money chasing too few goods and services results in higher prices. But when a country can export its currency to other nations who have an artificial need to hold large amounts of that currency in reserve, the issuing country can create far more money than it otherwise could have, without causing a tidal wave of domestic inflation.
By 1970, the U.S.had drastically over-spent on the Vietnam War, and the number of dollars in circulation far outnumbered the amount of gold actually backing them. Other nations recognized that there wasn’t enough gold in Fort Knox for the U.S.to back all the dollars in circulation, and wisely began to exchange their excess USDs for gold. Before long, something akin to a run on the bullion bank had begun, and it became clear that the USA could not honor the $35 conversion price indefinitely.
On August 15, 1971, President Nixon did exactly what Triffin predicted more than a decade earlier: he declared force majeure, and defaulted unilaterally on the USA’s promise to honor gold conversion at $35/oz, as prescribed by the Bretton Woods accord.
Of course Nixon was not about to admit that the reason this was happening was that the U.S. Government had abused its status as reserve currency issuer and recklessly spent beyond its means. Instead, he blamed “speculators”, and announced that the United States would suspend temporarily the convertibility of the Dollar into gold. Forty-two years later, the word temporarily has taken on new meaning.
With the whole world conducting international trade in U.S. dollars, nations with large export markets wound up with a big pile of U.S. dollars (payments for the goods they exported). The most obvious course of action for the foreign companies who received all those dollars as payment for their exported products would be to exchange the dollars on the international market, converting them into their own domestic currencies. What may not be obvious at first glance is that there would be catastrophic unintended consequences if they actually did that.
If all the manufacturing companies in Japan or China converted their dollar revenues back into local currency, the act of selling dollars and buying their domestic currencies would cause their own currencies to appreciate markedly against the dollar. The same holds true for oil exporting countries. If they converted all their dollar revenues back into their own currencies, doing so would make their currencies more expensive against the dollar. That would make their exports less attractive because, being priced in dollars, they would fetch lower and lower prices after being converted back into the exporting nation’s domestic currency.
The solution for the exporting nations was for their central banks to allow commercial exporters to convert their dollars for newly issued domestic currency. The central banks of exporting nations would wind up with a huge surplus of U.S. dollars they needed to invest somewhere without converting them to another currency. The obvious place to invest them was into U.S. Government Bonds.
This is the mechanism through which the reserve currency status of the dollar creates artificial demand for U.S. dollar-denominated treasury debt. That artificial demand allows the United States government to borrow money from foreigners in its own currency, something most nations cannot do at all. What’s more, this artificial demand for U.S. Treasury debt allows the USA to borrow and spend far more borrowed foreign money than it would otherwise be able to, were it not the world’s reserve currency issuer. The reason is that, if not for the artificial need to hold dollar reserves, foreign lenders would be much less inclined to purchase U.S. debt, and would therefore demand much higher interest rates. Similarly, the more that international trade has grown as a result of globalization, the more the United States’ exorbitant privilege has grown.
Have you ever wondered why China, Japan, and the oil exporting nations have such enormous U.S. Treasury bond holdings, despite the fact that they hardly pay any interest these days? The reason is definitely not because those nations think 1.6% interest on a 10-year unsecured loan to a nation known to have a reckless spending habit is a good investment. It’s because they have little other choice. The more their own economies rely on exports priced in dollars, the more they need to keep their own currencies attractively priced relative to the U.S. dollar in order for their exports to remain competitive on the international market. To achieve that outcome, they must hold large reserves denominated in U.S. dollars. That’s why China and Japan – major export economies – are the biggest foreign holders of U.S. debt.
The net effect of this system is that the USA gets to borrow money from foreigners at artificially low interest rates. Moreover, the USA can become over-indebted without the usual consequences of increasing borrowing cost and declining creditworthiness. Other nations have little choice but to maintain a large reserve supply of dollars as the international trade currency. But the U.S. has no need to maintain large reserves of other nations’ currencies, because those currencies are not used in international trade.
By the mid-1960s, this phenomenon became known as exorbitant privilege: That phrase refers to the ability of the USA to go into debt virtually for free, denominated in its own currency, when no other nation enjoys such a privilege. The phrase exorbitant privilege is often attributed to French President Charles de Gaulle, although it was actually his finance minister, Valery Giscard d’Estaing, who coined the phrase.
What’s important to understand here is that the whole reason the U.S. can get away with running trillion-dollar budget deficits without the bond market revolting (a la Greece) is because of exorbitant privilege. And that privilege is a direct consequence of the U.S. dollar serving as the world’s reserve currency. If international trade were not conducted in dollars, exporting nations (both manufacturers and oil exporters) would no longer need to hold large reserves of U.S. dollars.
Put another way, when the U.S. dollar loses its reserve currency status, the U.S. will lose its exorbitant privilege of spending beyond its means on easy credit. The U.S. Treasury bond market will most likely crash, and borrowing costs will skyrocket. Those increased borrowing costs will further exacerbate the fiscal deficit. Can you say self-reinforcing vicious cycle?
If the whole point of the Bretton Woods system was to guarantee that all the currencies of the world were “as good as gold” because they were convertible to U.S. dollars, which in turn were promised to be convertible into gold… And then President Nixon broke that promise in 1971… Wouldn’t that suggest that the whole system should have blown up in reaction to Nixon slamming the gold window shut in August of ’71?
Actually, it almost did. But miraculously, the system has held together for the last 42 years, despite the fact that the most fundamental promise upon which the system was based no longer holds true. To be sure, the Arabs were not happy about Nixon’s action, and they complained loudly at the time, rhetorically asking why they should continue to accept dollars for their oil, if those dollars were not backed by anything, and might just become worthless paper. After all, if U.S. dollars were no longer convertible into gold, what value did they really have to foreigners? The slamming of the gold window by President Nixon in 1971 was not the only cause of the Arab oil embargo, but it was certainly a major influence.
Why didn’t the rest of the world abandon the dollar as the global reserve currency in reaction to the USA unilaterally reneging on gold convertibility in 1971? In my opinion, the best answer is simply “Because there was no clear alternative”. And to be sure, the unmatched power of the U.S.military had a lot to do with eliminating what might otherwise have been attractive alternatives for other nations.
U.S. diplomats made it clear to Arab leaders that they wanted the Arabs to continue pricing their oil in dollars. Not just for U.S.customers, but for the entire world. Indeed, U.S. leaders at the time understood all too well just how much benefit the USA derives from exorbitant privilege, and they weren’t about to give it up.
After a few years of tense negotiations including the infamous oil embargo, the so-called petro-dollar business cycle was born. The Arabs would only accept dollars for their oil, and they would re-invest most of their profits in U.S. Treasury debt. In exchange for this concession, they would come under the protectorate of the U.S. military. Some might even go so far as to say that the U.S. government used the infamous Mafia tactic of making the Arabs an “offer they couldn’t refuse” – forcing oil producing nations to make financial concessions in exchange for “protection”.
With the Arabs now strongly incented to continue pricing the world’s most important commodity in U.S. dollars, the Bretton Woods system lived on. No longer constrained by the threat of a run on its bullion reserves, the U.S. kicked its already-entrenched practice of borrowing and spending beyond its means into high gear. For the past 42 years, the entire world has continued to conduct virtually all international trade in Dollars. This has forced China, Japan, and the oil exporting nations to buy and hold an enormous amount of U.S. Treasury debt. Exorbitant privilege is the key economic factor that allows the U.S.to run trillion dollar fiscal deficits without crashing the Treasury bond market. So far.
But how long can this continue? The U.S.debt-to-GDP ratio now exceeds 100%, and the U.S. has literally doubled its national debt in the last 6 years alone. It stands to reason that eventually, other nations will lose faith in the dollar and start conducting business in some other currency. In fact, that’s already started to happen, and it’s perhaps the most important, under-reported economic news story in all of history.
Some examples…China and Brazil are now conducting international trade in their own currencies, as are Russia and China. Turkey and Iran are trading oil for gold, bypassing the dollar as a reserve currency. In that case, US sanctions are a big part of the reason Iran can’t sell its oil in dollars. But I wonder if President Obama considered the undermining effect on exorbitant privilege when he imposed those sanctions. I fear that the present U.S. government doesn’t understand the importance of the dollar’s reserve currency role nearly as well as our leaders did in the 1970s.
To be sure, Peak Oil in general represents a monumental risk to humanity because it’s literally impossible to feed all 7+ billion people on the planet without abundant energy to run our farming equipment and distribution infrastructure. But the risks stemming directly from declining energy production are not the most imposing, in my view.
Decline rates will be gradual at first, and it will be possible, even if unpopular, to curtail unnecessary energy consumption and give priority to life-sustaining uses for the available supply of liquid fuels. In my opinion, the greatest risks posed by Peak Oil are the consequential risks. These include resource wars between nations, hoarding of scarce resources, and so forth. Chief among these consequential risks is the possibility that the Peak Oil energy crisis will be the catalyst to cause a global financial system meltdown. In my opinion, the USA losing its reserve currency status is likely to be at the heart of such a meltdown.
A good rule of thumb is that if something is unsustainable and cannot continue forever, it will not continue forever. The present incarnation of the IMS, which affords the United States the exorbitant privilege of borrowing a seemingly limitless amount of its own currency from foreigners in order to finance its reckless habit of spending beyond its means with trillion-dollar fiscal deficits, is a perfect example of an unsustainable system that cannot continue forever.
But the bigger the ship, the longer it takes to change course. The IMS is the biggest financial ship in the sea, and miraculously, it has remained afloat for 42 years after the most fundamental justification for its existence (dollar-gold convertibility) was eliminated. How long do we have before the inevitable happens, and what will be the catalyst(s) to bring about fundamental change? Those are the key questions.
In my opinion, the greatest risk to global economic stability is a sovereign debt crisis destroying the value of the world’s reserve currency. In other words, a crash of the U.S. Treasury Bond market. I believe that the loss of reserve currency status is the most likely catalyst to bring about such a crisis.
The fact that the United States’ borrowing and spending habits are unsustainable has been a topic of public discussion for decades. Older readers will recall billionaire Ross Perot exclaiming in his deep Texas accent, “A national debt of five trillion dollars is simply not sustainable!” during his 1992 Presidential campaign. Mr. Perot was right when he said that 20 years ago, but the national debt has since more than tripled. The big crisis has yet to occur. How is this possible? I believe the answer is that because the U.S. dollar is the world’s reserve currency and is perceived by institutional investors around the globe to be the world’s safest currency, it enjoys a certain degree of immunity derived from widespread complacency.
But that immunity cannot last forever. The loss of reserve currency status will be the forcing function that begins a self-reinforcing vicious cycle that brings about a U.S. bond and currency crisis. While many analysts have opined that the USA cannot go on borrowing and spending forever, relatively few have made the connection to loss of reserve currency status as the forcing function to bring about a crisis.
We’re already seeing small leaks in the ship’s hull. China openly promoting the idea that the yuan should be asserted as an alternative global reserve currency would have been unthinkable a decade ago, but is happening today. Major international trade deals (such as China and Brazil) not being denominated in US dollars would have been unthinkable a decade ago, but are happening today.
So we’re already seeing signs that the dollar’s exclusive claim on reserve currency status will be challenged. Remember, when the dollar loses reserve currency status, the U.S.loses exorbitant privilege. The deficit spending party will be over, and interest rates will explode to the upside. But to predict that this will happen right now simply because the system is unsustainable would be unwise. After all, by one important measure the system stopped making sense 42 years ago, but has somehow persisted nonetheless. The key question becomes, what will be the catalyst or proximal trigger that causes the USD to lose reserve currency status, igniting a U.S. Treasury Bond crisis?
It’s critical to understand that the USA is presently in a very precarious fiscal situation. The national debt has more than doubled in the last 10 years, but so far, there don’t seem to have been any horrific consequences. Could it be that all this talk about the national debt isn’t such a big deal after all?
The critical point to understand is that while the national debt has more than doubled, the U.S. Government’s cost of borrowing hasn’t increased at all. The reason is that interest rates are less than half what they were 10 years ago. Half the interest on twice as much principal equals the same monthly payment, so to speak. This is exactly the same trap that subprime mortgage borrowers fell into. First, money is borrowed at an artificially low interest rate. But eventually, the interest rate increases, and the cost of borrowing skyrockets. The USA is already running an unprecedented and unsustainable $1 trillion+ annual budget deficit. All it would take to double the already unsustainable deficit is for interest rates to rise to their historical norms.
This all comes back to exorbitant privilege. The only reason interest rates are so low is that the Federal Reserve is intentionally suppressing them to unprecedented low levels in an attempt to combat deflation and resuscitate the economy. The only reason the Fed has the ability to do this is that foreign lenders have an artificial need to hold dollar reserves because the USD is the global reserve currency. They would never accept such low interest rates otherwise. Loss of reserve currency status means loss of exorbitant privilege, and that in turn means the Fed would lose control of interest rates. The Fed might respond by printing even more dollars out of thin air to buy treasury bonds, but in absence of reserve currency status, doing that would cause a collapse of the dollar’s value against other currencies, making all the imported goods we now depend on unaffordable.
In summary, the U.S. Government has repeated the exact same mistake that got all those subprime mortgage borrowers into so much trouble. They are borrowing more money than they can afford to pay back, depending solely on “teaser rates” that won’t last. The U.S. Government’s average maturity of outstanding treasury debt is now barely more than 5 years. This is analogous to cash-out refinancing a 30-year fixed mortgage, replacing it with a much higher principal balance in a 3-year ARM that offers an initial teaser rate. At first, you get to borrow way more money for the same monthly payment. But eventually the rate is adjusted, and the borrower is unable to make the higher payments.
When it comes to evaluating the risk of a U.S. sovereign debt and currency crisis, most mainstream economists dismiss the possibility out of hand, citing the brilliant wisdom that “the authorities would never let such a thing happen”. These are the same people who were steadfastly convinced that housing prices would never crash in the United States because they never had before, and that Peak Oil is a myth because the shale gas boom solves everything (provided you don’t actually do the math).
At the opposite extreme are the bloggers on the Internet whom I refer to as the Hyperinflation Doom Squad. Their narrative generally goes something like this: Suddenly, when you least expect it, foreigners will wise up and realize that the U.S. national debt cannot be repaid in real terms, and then there will be a panic that results in a crash of the U.S. Treasury market, hyperinflation of the U.S. dollar, and declaration of martial law. This group almost always cites the hyperinflations of Zimbabwe and Argentina as “proof” of what’s going to happen in the USA any day now, but never so much as acknowledges the profound differences in circumstances between the USA and those countries. These folks deserve a little credit for having the right basic idea, but their analysis of what could actually happen simply isn’t credible when examined in detail.
Little-known economist Eric Janszen stands out as an exception. Janszen is the only credible macroeconomic analyst I’m aware of who realistically acknowledges just how real and serious the threat of a U.S. sovereign debt crisis truly is. But his analysis of that risk is based on credible, level-headed thinking complemented by solid references to legitimate economic theory such as Triffin’s Dilemma. Unlike the Doom Squad, Janszen does not rely on specious comparisons of the USA to small, systemically insignificant countries whose past financial crises have little in common with the situation the USA faces. Instead, Janszen offers refreshingly sound, well constructed arguments. Many of the concepts discussed in this article reflect Janszen’s work.
Janszen also happens to be the same guy who coined the phrase Peak Cheap Oil back in 2006, drawing an important distinction between the geological phenomenon of Hubbert’s Peak and the economic phenomenon which begins well before the actual peak, due to increasing marginal cost of production resulting from ever-increasing extraction technology complexity.
Janszen has put quite a bit of work into modeling what a U.S. bond and currency crisis would look like. He initially called this KaPoom Theory, because history shows that brief periods of marked deflation (the ‘Ka’) usually precede epic inflations (the ‘Poom’). He recently renamed this body of work The Janszen Scenario.
Briefly summarized, Janszen’s view is that the U.S. has reached the point where excessive borrowing and fiscal irresponsibility will eventually cause a catastrophic currency and bond crisis. He believes that all that’s needed at this point is a proximal trigger, or catalyst, to bring about such an outcome. He thinks there are several potential triggers that could bring such a crisis about, and chief among the possibilities is the next Peak Cheap Oil price spike.
There are several ways that an oil price spike could trigger a U.S. bond and currency crisis. Energy is an input cost to almost everything else in the economy, so higher oil prices are very inflationary. The Fed would be hard pressed to continue denying the adverse consequences of quantitative easing in a high inflation environment, and that alone could be the spark that leads to higher treasury yields. The resulting higher cost of borrowing to finance the national debt and fiscal deficit would be devastating to the United States.
A self-reinforcing vicious cycle could easily begin in reaction to oil price-induced inflation alone. But we must also consider how an oil price shock could lead to loss of USD reserve currency status, and therefore, loss of U.S. exorbitant privilege. In the 1970s, the USA represented 80% of the global oil market. Today we represent 20%, and demand growth is projected to come primarily from emerging economies. In other words, the rationale for oil producers to keep pricing their product in dollars has seriously deteriorated since the ‘70s. The more the global price of oil goes up, the more the U.S. will source oil from Canadian tar sands and other non-OPEC sources. That means less and less incentive for the OPEC nations to continue pricing their oil in dollars for all their non-U.S. customers.
Iran and Turkey have already begun transacting oil sales in gold rather than dollars. What if the other oil exporting nations wake up one morning and conclude “Hey, why are we selling our oil for dollars that might some day not be worth anything more than the paper they’re printed on?” Oil represents a huge percentage of international trade, so if oil stopped trading in dollars, that alone would be reason for most nations to reduce the very large dollar reserves they now hold. They would start selling their U.S. treasury bonds, and that could start the vicious cycle of higher interest rates and exploding borrowing costs for the U.S. Government. The precise details are hard to predict. The point is, the system is already precarious and vulnerable, and an oil price shock could easily detonate the time bomb that’s already been ticking away for more than two decades.
There’s another angle here. Peak Oil just might be the catalyst to cause the loss of U.S. exorbitant privilege, even without an oil price shock.
Astute students of Peak Oil already know better than to believe the recently-popularized political rhetoric claiming that the USA will soon achieve energy independence, thanks to the shale oil and gas boom. To be sure, the Bakken, Eagle Ford, and various other U.S. oil and gas plays are a big deal. The most optimistic forecasts I’ve seen show these plays collectively ramping up to as much as 4.8 million barrels per day of production, which is equivalent to about ½ of Saudi Arabia’s current production.
But the infamous “wedge of hope” chart from the EIA projects production declines from existing global resources of 60 million barrels per day by 2030. By the most optimistic projections, all the exciting new plays in the U.S. will replace less than 5 million barrels per day. Where the other 55 million barrels per day will come from remains a mystery! And of course the politicians never bother to mention such minor details when they make predictions of energy independence.
But let’s just pretend for a moment that hyperbole is reality, and that the USA will achieve energy-independence in just a few years’ time. Now consider the consequences to the IMS. The oil-exporting nations would lose the USA as their primary export customer, and would no longer have an incentive to price their oil in dollars, or to maintain large dollar reserves. They would start selling off their U.S. treasury bonds, and pricing their oil in something other than dollars. Large oil importers like China and Japan would stop paying for oil in dollars, and would no longer need to maintain present levels of U.S. dollar reserves. So they too would start selling U.S. treasury bonds, pushing up U.S. interest rates in the process. Once again, we have the ingredients for a self-reinforcing vicious cycle of increasing U.S. interest rates causing U.S. Government borrowing costs to skyrocket.
Without the artificial demand for treasury debt created by exorbitant privilege, the U.S. would be unable to finance its federal budget deficit. The Federal Reserve might respond with even more money printing to monetize all the government’s borrowing needs, but without the international demand that results from the dollar’s reserve currency status, the dollar would crash in value relative to other currencies as a result of excessive monetization by the Fed. The resulting loss of principal value would cause even more international holders of U.S. Treasury debt to panic and sell their holdings. Once again, a self-reinforcing vicious cycle would develop, with consequences for the United States so catastrophic that the 2008 event would pale in contrast.
Let’s not forget that the USA enjoys virtually unchallenged global military hegemony. China is working hard to build out its “blue water navy”, including strategic ballistic missile nuclear submarine capability. But the USA is still top dog on the global power stage, and if the USA was willing to use its nuclear weapons, it could easily defeat any country on earth, except perhaps China and Russia.
While the use of nuclear weapons in an offensive capacity might seem unthinkable today, the USA has yet to endure significant economic hardship. $15/gallon gasoline from the next Peak Cheap Oil price shock coupled with 15% treasury yields and a government operating in crisis mode just to hold off systemic financial collapse in the face of rampant inflation would change the mood considerably.
All the USA has to do in order to secure an unlimited supply of $50/bbl imported oil is to threaten to nuke any country refusing to sell oil to the U.S. for that price. Unthinkable today, but in times of national crisis, morals are often the first thing to be forgotten. We like to tell ourselves that we would never allow economic hardship to cause us to lose our morals. But just look at the YouTube videos of riots at Wal-Mart over nothing more than contention over a limited supply of boxer shorts marked down 20% for Black Friday. What we’ll do in a true crisis that threatens our very way of life is anyone’s guess.
If faced with the choice between a Soviet-style economic collapse and abusing its military power, the USA just might resort to tactics previously thought unimaginable. Exactly what those tactics might be and how it would play out are unknowable. The point is, this is a very complex problem, and a wide array of factors including military capability will play a role in determining the ultimate outcome.
I certainly don’t mean to predict such an apocalyptic outcome. All I’m really trying to say is that the military hegemony of the USA will almost certainly play into the equation. Even if there is no actual military conflict, the ability of the U.S. to defeat almost any opponent will play into the negotiations, if nothing else.
The current incarnation of the International Monetary System, in which the USA enjoys the exorbitant privilege of borrowing practically for free, and is therefore able to pursue reckless fiscal policy with immunity from the adverse consequences that non-reserve currency issuing nations would experience by doing so, cannot continue indefinitely. Therefore, it will not continue indefinitely. How and when it will end is hard to say, especially considering the fact that it’s already persisted for 42 years after it stopped making sense. The system will continue to operate until some catalyst or trigger event brings about catastrophic change.
The next Peak Cheap Oil price spike is not the only possible catalyst to bring about a U.S. bond and currency crisis, but it’s the most likely candidate I’m aware of. I don’t believe that U.S. energy independence is possible, but if it were, the end of oil imports from the Middle East would also be the catalyst to end exorbitant privilege and bring about a U.S.bond and currency crisis. To summarize, the music hasn’t stopped quite yet, but when it does, this will end very, very badly. I’m pretty sure we’re on the last song, but I don’t know how long it has left to play.
Erik Townsend is a hedge fund manager based in Hong Kong.
( Oct 02, 2017 , nationalinterest.org )
Jun 21, 2018 | peakoilbarrel.com
Energy News, 06/12/2018 at 5:11 pmHouston, 11 June (Argus) Plains All American Pipeline, a prime mover of crude around and away from the Permian, reiterated last week that there is not enough trucking capacity to address skyrocketing production, and potential rail slots are limited. With most material pipeline capacity additions a year or more away, Plains said the logical solution is slowing outputGuym , 06/12/2018 at 5:53 pm
https://www.argusmedia.com/pages/NewsBody.aspx?id=1696409&menu=yes?utm_source=rss%20Free&utm_medium=sendible&utm_campaign=RSSThat's really kind of funny. The takeaway professionals have to tell them, "come on guys, put a brake on it. It can't be moved." Note, the article stated that the pipeline company said production is already slowing. Wonder if EIA will finally read the memo? Also, it may result in more little fish, being eaten by the bigger fish.George Kaplan , 06/12/2018 at 11:36 pm
Energy News, you constantly amaze me with your finds of information. Everything is extremely pertinent.The next 3 or 4 months for EF and Bakken might be interesting – they've both been steady or slightly declining with no pick up in drilling or, I think, permitting even as the price has risen, and the initial well production and ultimate recovery look to be declining on recent wells. If Permian is closed off I wonder if the operators will bother to move back to these.Dan Goudreault , 06/13/2018 at 3:05 amState of North Dakota came out with a new presentation a few weeks ago showing revised predictions for Bakken oil output. They now have production likely reaching 1,900,000 BOPD within the next decade while the best forecast offers better than 2,200,000 BOPD.Guym , 06/13/2018 at 8:10 am
https://www.dmr.nd.gov/oilgas/presentations/WBPC052418_2400.pdfYeah, I think they will. You just won't see growth just overnight from these areas, and the ones who had good areas in these, never left. EOG, Conoco and others are still doing their thing. Growth will mainly show up the first and second quarter of 2019. Maybe some the last quarter of 2018. My guess. It just won't ramp up like the Permian, EIA predicts a bunch, but they are smoking some strong stuff. They believe in teleportation of oil to the coast, and further teleportation to VLCCs off the coast.
That not everyone believes the EIA is evident in the huge, many billions of dollars, losses in stock value of the "Permian pure play" companies recently. EIAs and IEAs fairy tales are coming unraveled. About the only section of the investment community that still believes them, is that percentage of adults that still believe chocolate milk comes from brown cows. What they are still unsure of, is how much excess capacity OPEC now has.
Wild guess on the 22nd. OPEC releases non-opec from the agreement. Increasing OPEC, at this point, will involve disintegration of OPEC, which it really is, anyway. But, a modest increase may hold them together for a little while. Although, for the Sauds part, I don't know why they would, except to keep up the illusion.
Jun 14, 2018 | peakoilbarrel.com
TechGuy , 06/14/2018 at 4:29 pm"I think not, it's a lot cheaper to add a few more production wells than to add a couple of million barrels of high pressure water injection capacity (topsides facilities and the wells needed to inject it"Michael B , 06/14/2018 at 5:32 pm
Water injection isn't the problem, its water cut. The don't need to inject more if they keep the water cut stable. In order to keep the water cut, they have to perodically drill new wells to keep the wells in contact with the Oil column. Over time the Water column push up on the Oil column (ie Oil floats on Water). All the CapEx/Opex goes into drilling to keep in the Oil Column Zone as well as add new wells to tap oil trapped in pockets. As the Oil column continues to shrink and and as the water column become increasing contact with the cap rock its going to required more and more drilling to maintain production.
My guess well know when SA starts running into problems when we start to see the rig count increase and the production dropping over a period of a couple of years.
"The drilling of new oil wells is to maintain current production, not to increase it"
SA cannot increase Oil production much. They are working on extracting the remaining cream (oil column) floating on a see of water. Increasing production would just increase the water cut and also increase trapped oil that would later be more costly to extract. The only way SA can increase production is to tap new fields or increase drilling for oil trapped in pockets. But at some point these options will vanish over time as it will be increasing more difficult to squeeze more oil out, like trying to squeeze trapped toothpaste out of a depleted toothpaste tube.But this can't be right because it makes so much sense that I understand it.George Kaplan , 06/14/2018 at 11:41 pmI didn't say water injection was the problem I said it was the limit to increasing production. It is. Water cut is the problem that leads to decline unless they keep drilling new wells.Eulenspiegel , 06/15/2018 at 3:36 am
Two ways that increasing water cut is a problem are: 1) you have to inject more water for the same amount of oil, which they don't have, 2) you have to treat more produced water, which they don't have capacity for. Exactly what I said above. The third is that it reduces overall well flow and, more so, oil flow; but that is easily got round if it easy to drill new wells, as is the case for Saudi, even the offshore fields, which are shallow. That also solves the first two problems because the individual field and overall country water cuts are held steady.
The limits on surface facilities are much more expensive and long term (5 years at least) to get round, but it could be done, therefore it is wrong to say that the only way to increase production is to tap new fields.
(ps – I worked on water flood oil fields, including some minor studies for Saudi, for at least 15 years through my career, the water is a bigger influence on the design and operation than the oil.)That all together sounds like it's completely senseless to keep some spare capacity for fields like this.George Kaplan , 06/15/2018 at 5:37 am
This capacity will cost billions, hold back for not much. A big oil storage is better there for satisfying demand peaks or temporary supply losses.
Reserve capacity is cheap to have when you are in primary recovery of a conventional (giant) field.
The only illusion of reserve capacity would be in fields with tertiary recovery would be to postpone maintainance for a few months to get that 5% more production.
Did I understand it right?Some spare is always needed, just to maintain production during maintenance or unplanned outages. Sparing doesn't postpone maintenance, it means maintenance can be done without taking the plant offline, or at least not for too long, so you get maximum returns on your investment (when plants are taken down for major turn arounds it is to do work on items for which there are no online spares).Dennis Coyne , 06/15/2018 at 10:25 am
Depending on the maturity of the field there is also always different amount of sparage in the different project components – e.g. the wells, compression, power generation, oil processing, export capacity, water injection, water processing – the limit is the component with the least amount of sparage.
In Saudi also, at least for the heavy fields, they have been known to rest them completely for a time, this allows the water contact to settle out and avoid excessive coning, which provides a much better sweep of the oil and higher recoveries (I don't think any where else has that luxury).
So when someone says "we have spare capacity" it can mean almost anything from 2×100% pumps on a particular duty to an entirely unused, ready for action oil field.
From a modern capitalist approach with everything just-in-time and the next quarterly statement being all important then excess sparing wouldn't please the shareholders, but Saudi designed facilities with 50 year life times, so it might be different.
From looking at their recent production profiles, which seem to go up when they report a new start-up and then decline, and stock draws, which have been consistent since January 2016, I find it hard to believe they have a large amount of "real" spare capacity – i.e. that's easy to bring on line and that doesn't alter any of the performance of the fields over the long term or compromise planned maintenance schedules – but I can't say for sure. And, as I've said, the limit to expanding production (that means beyond just using up the spare) is almost certainly with the surface facilities for water, so it's likely that is also the part with the least spare capacity.Thanks George.George Kaplan , 06/15/2018 at 12:33 pm
It sounds like you believe they might be able to maintain a plateau of 10 Mb/d for many years, if they just drill more wells as needed. Though I may not be understanding correctly.There's the big question. Once the horizontal wells are at the top of the reservoir then you can't drill any more and once the water contact hits them, even with intelligent completions, then the decline will be fast (but even that is relative, huge fields take longer to decline than small ones). There was a report in the Oil Drum some time ago that indicated that a lot of Ghawar wells were near the limit but nothing much seems to have happened since to indicate this turned into a problem, but then Saudi has a lot of other fields. On some of their offshore fields they are replacing all the wellheads to add ESPs, that usually means they have run out of new well options. Their rig count is declining, but maybe jus because they are drilling much more productive MRC wells.Dennis Coyne , 06/17/2018 at 9:27 am
It's the difference between the size of the tank and the size of the tap (or for water injection more like the size of the vent that lets air in to stop the tank collapsing under suction). Might only know what's going on well after the fact.Indeed there is much that we do not know about KSA.
Jun 21, 2018 | www.zerohedge.com
China's Oil Trade Retaliation Is Iran's Gain
by Tyler Durden Wed, 06/20/2018 - 23:05 13 SHARES Authored by Tom Luongo,
I've told you that once you start down the Trade War path forever it will dominate your destiny.
Well here we are. Trump slaps big tariffs on aluminum and steel in a bid to leverage Gary Cohn's ICE Wall plan to control the metals and oils futures markets . I'm not sure how much of this stuff I believe but it is clear that the futures price for most strategically important commodities are divorced from the real world.
Alistair Crooke also noted the importance of Trump's 'energy dominance' policy recently , which I suggest strongly you read.
But today's edition of "As the Trade War Churns" is about China and their willingness to shift their energy purchases away from U.S. producers. Irina Slav at Oilprice.com has the good bits.
The latest escalation in the tariff exchange, however, is a little bit different than all the others so far. It's different because it came after Beijing said it intends to slap tariffs on U.S. oil, gas, and coal imports.
China's was a retaliatory move to impose tariffs on US$50 billion worth of U.S. goods, which followed Trump's earlier announcement that another US$50 billion in goods would be subjected to a 25-percent tariff starting July 6.
It's unclear as to what form this will take but there's also this report from the New York Times which talks about the China/U.S. energy trade.
Things could get worse if the United States and China ratchet up their actions [counter-tariffs] . Mr. Trump has already promised more tariffs in response to China's retaliation. China, in turn, is likely to back away from an agreement to buy $70 billion worth of American agricultural and energy products -- a deal that was conditional on the United States lifting its threat of tariffs.
"China's proportionate and targeted tariffs on U.S. imports are meant to send a strong signal that it will not capitulate to U.S. demands," said Eswar Prasad, a professor of international trade at Cornell University. "It will be challenging for both sides to find a way to de-escalate these tensions."
But as Ms. Slav points out, China has enjoyed taking advantage of the glut of U.S. oil as shale drillers flood the market with cheap oil. The West Texas Intermediate/Brent Spread has widened out to more than $10 at times.
By slapping counter tariffs on U.S. oil, that would more than overcome the current WTI/Brent spread and send Chinese refiners looking for new markets.
Hey, do you know whose oil is sold at a discount to Brent on a regular basis?
Iran's. That's whose.
And you know what else? Iran is selling tons, literally, of its oil via the new Shanghai petroyuan futures market.
Now, these aren't exact substitutes, because the Shanghai contract is for medium-sour crude and West Texas shale oil is generally light-sweet but the point remains that the incentives would now exist for Chinese buyers to shift their buying away from the U.S. and towards producers offering substitutes at better prices.
This undermines and undercuts Trump's 'energy dominance' plans while also strengthening Iran's ability to withstand new U.S. sanctions by creating more customers for its oil.
Trade wars always escalate. They are no different than any other government policy restricting trade. The market response is to always respond to new incentives. Capital always flows to where it is treated best.
It doesn't matter if its domestic farm subsidies 'protecting' farmers from the business cycle or domestic metals producers getting protection via tariffs.
By raising the price above the market it shifts capital and investment away from those protected industries or producers and towards either innovation or foreign suppliers.
Trump obviously never read anything from Mises, Rothbard or Hayek at Wharton. Because if he did he would have come across the idea that every government intervention requires an ever-greater one to 'fix' the problems created by the first intervention.
The net result is that if there is a market for Iran's oil, which there most certainly is, then humans will find a way to buy it. If Trump tries to raise the price too high then it will have other knock-on effects of a less-efficient oil and gas market which will create worse problems in the future for everyone, especially the very Americans he thinks he's defending.
* * *
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Jun 21, 2018 | peakoilbarrel.com
shallow sand x Ignored says: 06/18/2018 at 2:36 pmThere is a narrative that oil demand will soon begin dropping due to widespread use of EV.GoneFishing x Ignored says: 06/18/2018 at 3:28 pm
1 million EV just replaces 14,000 BOPD of demand. Conservatively assuming those one million EV require $40K per unit of CAPEX, just to replace 14,000 BOPD of demand took $40 billion of CAPEX.
Likewise, to replace 1.4 million BOPD of demand via EV would take $4 trillion of CAPEX.
Worldwide demand has been growing somewhere between 1.2-2.0 million BOPD annually, depending on who one believes.
See where I am going with this? How do the EV disruption proponents explain away the massive CAPEX required just to cause oil demand to flatten, let alone render it near obsolete?
I'd like to see some explanation with numbers.The average US car gets 25 mpg and travels 12,500 miles per year for 500 gallons of gasoline per year.Dennis Coyne x Ignored says: 06/18/2018 at 6:04 pm
Refineries in the US produce 20 gallons of gasoline per barrel of oil.
That gives 69,000 BOPD per day reduction per million EV cars in the US and 110,000 BOPD oil equivalent energy due to the multiple energies put into gasoline and distillate production.
At current rates of EV sales growth the US will reach 50 million EV cars by 2031. That should put he US to being mostly independent of external oil for gasoline by mid 2030's and
It's tough to predict a complete transition in the US since cars as a service could greatly reduce the numbers of cars needed, especially in dense population areas. That would mean a much earlier transition.
If US ICE cars trend upward in mpg during that time, the demand for oil could be quite low by the early 2030's.
All depends on continuation of trends, for which the auto manufacturers seem to be on board. Just have to get the public charging infrastructure out ahead of the trend.
Here is an interesting article, from a couple of years ago, showing the trend and sales at that time.
Cars get replaced all the time and the cost of new EVs will fall over time to the same price as ICEV, so it's simply a matter of replacing the ICEV currently sold with EVs over time, in addition cars can get better gas mileage (50 MPG in a Prius vs 35 MPG in a Toyota Corolla or 25 MPG in a Camry.) There's also plug in hybrids like the Honda Clarity (47 miles batttery range) or Prius Prime(25 mile range on battery) these have an ICE for when the battery is used up.
If oil prices rise in the short term to over $100/b (probably around 2022 to 2030), there will be demand for other types of transport besides a pure ICEV.
EVs and plugin hybrids will become cheaper as manufacturing is scaled up due to economies of scale.
Jun 21, 2018 | peakoilbarrel.com
Watcher, 06/17/2018 at 11:37 pm
Got time to go thru the bible more carefully.
Surprising stuff. Huge oil consumption growth rates in Eastern Europe. 8+% growth %s in Poland, Czech Republic and Slovakia. Something weird going on because Romania and Slovenia didn't show the same thing.
Western Africa grew consumption of oil 13% last year. I'll add a !!!!. East Africa about 6%. Both are over 600K bpd, so that growth rate is not on tiny burn.
World oil consumption growth 1.8%.
(population in africa . . . . . .)
Ktoś, 06/18/2018 at 8:44 amPoland's official oil consumption growth is caused by better fighting with illegal, and unregistered fuel imports since mid 2016. When taxes are 50% of fuel price, there is big incentive for illegal activities. Real oil consumption probably didn't increase much.Strummer, 06/18/2018 at 2:00 pmPoland, Czech and Slovakia are going through a huge economic boom now (I live in Slovakia and party in Czech Republic). It's visible everywhere, there wasn't this much spending and employment ever in the last 28 yearsWatcher, 06/19/2018 at 12:04 amSouth Africa grew at 0.6%.Watcher, 06/18/2018 at 2:43 pm
Middle Africa is listed as growing at 0.4%. North Africa is divided up Egypt, Morocco and "Other North Africa". Other was +4.7% consumption growth.
It's gotta be Nigeria west and Angola east.Pssssst.Dennis Coyne, 06/19/2018 at 6:41 am
Oil consumption 2017 increased 1.8% from 2016.
Oil price 2016 about $41/b. Oil price 2017 about $55/b.
hahahahhaaOil demand is mostly determined by GDP growth, oil price has a minor influence on short term demand. World GDP grew by about 5% from 2016 to 2017 according to the IMF, so oil demand increased by 1.8% possibly less than one would expect. Real GDP (at market exchange rates) grew by about 3% in 2017.
Jun 21, 2018 | peakoilbarrel.com
Dennis Coyne x Ignored says: 06/18/2018 at 5:54 pmHi George,Eulenspiegel x Ignored says: 06/19/2018 at 3:56 am
The idea behind peak demand is simply that oil supply may at some point become relatively abundant relative to demand in the future (date unknown). When and if that occurs, OPEC may become worried that their oil resources will never be used and will begin to fight for market share by increasing production and driving down the price of oil to try to spur demand. That is the theory, I think we are probably 20 to 40 years from reaching that point for conventional oil.
Oil still contributes quite a bit to carbon emissions and while I agree coal use needs to be reduced (as carbon emissions per unit of exergy is higher for coal than oil), I would think it may be possible to work on reducing both coal and oil use at the same time. Using electric rail combined with electric trucks, cars and busses could reduce quite a bit of carbon emissions from land transport, ships and air transport may be more difficult.Why making a fire sale?Dennis Coyne x Ignored says: 06/20/2018 at 8:00 am
It's better to sell half of your ressources for 90$ / barrel than all at 30$ / barrel.
The gulf states will always have cheap production costs at their side, they will earn more at each price of oil. Why not make big money, especially when at lower production speed the production costs are much lower (less expensive infrastructure).
And in the first case you can sell chemical feedstock for a few 100 years ongoing for a good coin. Theocracies and Kingdoms plan sometimes for a long time. When you bail out everything at sale prices, you end with nothing ( and even no profit).Eulenspeigel,
You assume half the resource can be sold at $90/b, at some point in the future oil supply may be greater than demand at a price of $90/b, so at $90/b no oil is sold and revenue is zero.
In a situation of over supply there will be competition for customers and the supply will fall to the point where supply and demand are matched. Under those conditions OPEC may decide to drive higher cost producers out of business and take market share, oil price will fall to the cost of the most expensive (marginal) barrel that satisfies World demand.
I don't think we are close to reaching this point, but perhaps by 2035 or 2040 alternative transport may have ramped to the point where World demand for oil falls below World Supply of oil at $90/b and the oil price will gradually drop to a level where supply and demand match.
Jun 21, 2018 | peakoilbarrel.com
Energy Newss: 06/18/2018 at 5:17 pm
Drilling Productivity Report – what we need is a Permian Plumbing Report.
EIA – NOTE: Productivity estimates may overstate actual production which could be limited by logistical constraints.
Goldman Sachs: Executive summary for oil
Bloomberg: Saudi Arabia, crude oil export increase in early June
Saudi Arabia, some export charts for April – JODI Data
Product exports: https://pbs.twimg.com/media/DgAOnCMXkAAaDYS.jpg
Long term exports: https://pbs.twimg.com/media/DgAOYJOXkAEssEk.jpg
Domestic demand (they raised product prices): https://pbs.twimg.com/media/DgANzp-XkAAr_PN.jpg Reply
Kolbeinh x Ignored says: 06/19/2018 at 3:49 amThanks for providing a lot of info!George Kaplan,06/19/2018 at 4:06 am
Regarding Saudi Arabia, what seems certain is that they have increased crude exports in parts of May and early June by either activating "spare capacity" or withdrawal from storage. Coming into peak domestic demand season it will be hard for OPEC to compensate for Iran, Venezuela, Libya and any other negative "surprises" coming along in 2H2018. It would be a real surprise if not the solution is to agree to a moderate production increase due to quite a few reasons (I can think of at least 5 reasons for this on top of my head). I can imagine OPEC/Russia want a somewhat controlled price increase to let us guess 90-100 dollars before the low demand season kicks in 1H2019. If demand growth is still not impacted too much the supply problems start to become unsolvable in 2019 and in any case 2020. There is both a potential for a great price spike and recessions in 2019 imho.Is it spare capacity or is it 300 kbpd from Khurais expansion start-up (which was due in May and even then was a year later than planned)?Kolbeinh, 06/19/2018 at 4:39 amI don't think it is Khurais. The project is delayed, but for how long is uncertain.Energy News, 06/19/2018 at 5:14 am
A quick search on the internet:
"We see Opec building capacity over the coming five years, largely driven by Saudi Arabia where we see the Khurais expansion in 2019 and the Marjan field start-up by 2021. Saudi Arabia is pressing ahead with upstream investment as part of its Vision 2030 strategy," BofAML said.
No timeline given here either (if someone is a contractor and signs up here, maybe there are some details):
https://www.protenders.com/companies/saudi-aramco/projects/khurais-oilfield-expansionI was thinking that the price of WTI is still cheap. But then countries such as Russia have been complaining that product prices are too high and that their refinery margins are too low, and so I don't know. I still think prices could spike higher, sometime, due to outages and lack of long term investment.
It seems that OPEC is looking to prevent supply shortages during peak demand
2018-06-19 OPEC technical panel sees strong oil demand in H2 2018, implying that the market could absorb additional production, according to 3 OPEC sources
Jun 21, 2018 | www.zerohedge.com
With the most highly-anticipated OPEC meeting since November 2014 taking place Friday in Vienna, Macrovoices host Erik Townsend made this week's podcast all about oil. He started his three-part interview series with Dr. Ellen Wald, the author of "Saudi Inc.", a book about Aramco. During their discussion, Wald shares what she learned about the Kingdom of Saudi Arabia and - most importantly - how the royals view both Aramco and the oil market. This perspective is important, she explains, in interpreting why former Saudi energy minister Ali Al Naimi made the infamous decision back in November 2014 to keep OPEC oil production targets unchanged . That decision precipitated another leg lower in oil prices, eventually sending them to $30 a barrel. Many observers criticized the Saudis for shooting themselves in the foot by standing against production cuts. But the one thing that these critics didn't understand, Wald said, is that the Kingdom has always treated Aramco like a family business.
They have two twin objectives: long-term profit and power. And when they look at Aramco, they're not concerned about meeting, say, what their quarterly reports are going to show or their stock price. They're looking at this in the long term, in a generational perspective.
And so in 2014 when it seemed as though oil production was increasing around the world – there was lots of other sources – not just shale oil production in the United States but we had really increasing from all over – they went into that OPEC meeting and everyone thought oh, they have to cut production. If they don't they won't maintain the price they need for the budget and this is what has to be.
Instead, they surprised everyone by basically walking out and saying to heck with it, we're going to produce as much as we possibly can. And the reason, it seemed to me, was very clear: They knew that no matter how low the oil price went it was going to be that much worse for everybody else and not as bad for Saudi Arabia.
When Townsend asks about the decision to float 5% of Aramco in a foreign stock market (a plan that is reportedly on hold, for now at least), Wald explains that the Saudis respect their company's "American heritage" (the Saudis slowly nationalized Aramco in stages during the 1970s and 1980s, buying it in stages) and they view the company as an international oil company like Exxon.
But in another sense, I see this as a natural progression for a company that was an NOC but has always seen itself as really a major international oil company. And it's expanding its research, it's expanding its downstream operations, in order to have a profile similar to that of an IOC. They are very, very proud of the patents that they've acquired and they compare it to the number of patents that, say, Exxon gets. It's really very evident throughout this.
Next, Townsend turned to energy analysts Anas Alhajji and Joe McMonigle for a three-way discussion about what to expect From Friday's meeting. Earlier this month, we heard from fellow "geological expert" Art Berman, who speculated that the current glut of oil created by the shale boom in the US is a temporary anomaly
But the bigger factor here is Venezuela and how quickly Venezuelan crude has come off the market. Venezuela was producing about 1.4 million barrels a day. It's probably 1.3 now, in June. Under the OPEC agreement, they could be producing close to 2 million barrels a day. Berman speculated that the global demand curve is growing at a pace much more quickly than most market experts anticipate, and that - regardless of whether OPEC decides to raise or maintain production - the world will inevitably find itself mired in a supply crunch. But McMonigle asserted that the collapse of crude production in Venezuela has left a massive production hole that should be filled by OPEC members. Because of this, Saudi Arabia doesn't have a problem with higher prices, and even OPEC itself is anticipating that demand will remain strong in the second half of the year.
So that's 600-700 thousand barrels extra that has really accelerated crude stock drawdowns and I think has really supported higher prices quicker than most people thought. I was in the camp, and I think others were, that in the second half of this year we would be around between $70 and $75.
Obviously, we got there pretty quickly at $80. And most of that had to do with Venezuela. And then, of course, you had the Iran sanctions – which we've been talking about for a long time – that we expected to come. But there are a lot of people on the market that just didn't think Trump would pull the trigger on it. Well, he did. And so that really pushed things up to over $80. There isn't any crude yet coming off the market, but we certainly expect that there will be.
First of all, I have to say I don't think OPEC is going to give up that easily on higher prices. I think the Saudis are quite comfortable with prices around $80. They don't really see a production problem. The physical oil markets are pretty well-supplied, as I think Anas will talk about. But they really have a political problem instead of a production problem.
And the political problem is this: You know, higher prices, you've got some calls for action. Trump, of course, with his tweet a couple of weeks ago while the compliance committee was meeting in Riyadh I think really took them by surprise. I think there is kind of an implicit agreement to help because of the Iran sanctions. And that's something that Saudi Arabia and UAE and all the other Gulf countries support.
However, the one thing that could change their minds, is a political issue concerning their relationship with the US. Following Trump's aggressive Iran policy, there could be a consensus forming among the Gulf countries to support higher production levels that would held rein in prices. But this might not be in the long-term best interest of the Saudis.
JailBanksters Wed, 06/20/2018 - 18:51 PermalinkOldguy05 Wed, 06/20/2018 - 18:51 Permalink
$80 just happens to be the point to make shale oil and fracking become profitable.
Until that point they are sinking more money into getting the oil out than what they can sell the Oil for.
"Why OPEC Isn't Going To Give Up On High Oil Prices That Easily"
Cause they need money?
Jun 21, 2018 | peakoilbarrel.com
Fernando Leanme , 06/19/2018 at 2:17 pmOlder wells are declining at about 8% per year. A 25 BOPD well with a 10 BOPD economic limit should have 70,000 barrels of oil left to produce in about 12 years.Dennis Coyne , 06/20/2018 at 7:53 amHi Fernando,Fernando Leanme , 06/20/2018 at 9:08 am
Is it safe to assume that newer wells will behave the same as older wells?
Some petroleum engineers that have commented at shaleprofile.com (Enno Peters wonderful resource) that the high level of extraction from newer wells will likely lead to a thinner tail.
Chart below from
illustrates this, notice how the 2014 and 2015 wells fall below the 2010 well profile after 24 months, the same is likely to occur for 2016 and later wells. Also note that the 2010 well profile is representative (close to the mean) for 2009 to 2012 average well profiles.
Dennis, i would say the decline rate (8%) is very safe to use for all LTO wells, i would definitely apply it after the 6th year of well life, because by then what counts is rock quality and fluid type. This is only good for a bulk projection.
By the way I tweaked my price model when I was preparing my CO2 pathway. I took into account the Venezuela crash, the difficulties the Canadians have moving their crude, etc. The price projection is $88 per barrel Brent for evaluating projects which start spending in 2019. I also prepared a different look for very long term projects which start spending in 2023: $110 per barrel.
Don't forget these aren't prices predicted for those particular years. They are prices one can use to evaluate long term projects such as exploring in the Kara Sea, offshore West Africa deep water, the African rifts, Venezuela heavy oil developments, etc. These prices are plugged in and escalated with inflation for the 20-30 year project period. Real prices should oscillate back and forth around these values.
Jun 21, 2018 | peakoilbarrel.com
Energy News, 06/19/2018 at 3:47 am 2018-06-19
Norwegian crude oil & condensate production (without NGLs) at 1,321 kb/day in May, down -223 m/m, down -297 from 2017 average or -18%. The main reasons that production in May was below forecast is maintenance work and technical problems on some fields.
Almost down to the Sept 2012 low at 1,310 kb/day
George Kaplan , 06/19/2018 at 4:01 amBig unplanned outages coming on the gas side for June numbers as well.Kolbeinh , 06/19/2018 at 4:26 amThis is what happens when there are no sizeable new fields coming online for 1/2 year and as G.Kaplan has mentioned not enough allocation for supply disruptions are included in the forecast.George Kaplan, 06/19/2018 at 4:39 am
A brutal decline, even if this month is an anomaly as NPD say.Looking at the field numbers (only through April) it looks like Troll Oil is in decline a bit earlier and a bit steeper than expected. It's the biggest oil producer still bu has dropped fairly consistently and slightly accelerating from 161 kbpd in October to 121 in April. It's all horizontal wells and requires continuous drilling to maintain production, it's close to exhaustion with only 10% remaining at the end of 2017 (about R/P of 3 years) and had been holding a good plateau around 150 for a few years. The gas is due to be developed starting in 2021 so the oil rim would need to be depleted by then, but maybe dropping a bit sooner than expected – is a reservoir not behaving as modelled a "technical problem"?
Jun 21, 2018 | peakoilbarrel.com
dclonghorn, 06/17/2018 at 10:57 pmHere's a link to an interesting oil market assessment from 9 point energy.George Kaplan , 06/18/2018 at 1:35 am
They come up with a projection of 100 oil by 2020 using some conservative assumptions.I don't know about the price as it depends on the demand side and the global economy looks to me increasingly rocky, but the supply side analysis looks pretty good, except as you say a bit conservative. One thing missing was consideration of increasing decline rates on mature fields, especially offshore, partly a result of accelerating production in the high price years and partly because of an increasing ratio for deep and ultra deep water. Additionally I think the lack of increase in non-US drilling rigs as the price has risen is relevant and partly represents a shortage of in-fill prospects and short cycle appraisals.Guym , 06/18/2018 at 8:55 am
If they are relying on GoM to add the 300 kbpb (or more into 2020) that EIA are predicting then I think they are going to be short by 400 to 500 kbpd for a 2020 exit rate.
(I don't follow the chart showing new OPEC developments, the numbers can't be number of projects, probably kbpd added, or maybe mmbbls reserves, and I'm betting they've mixed in gas with the oil.)
As in all these investment type analyses they don't look too far ahead and there's a kind of tacit assumption that everything will be sorted out with more investment later on, but five years of low discoveries and accelerated development of the good ones means there's actually not that much new to invest in, and if there is then ExxonMobil will be looking to buy it.Yeah, demand is always a big question. Hard to measure, even in the rear view mirror. However, their constant increase of 1.2 million barrels in the US over a three year period, should offset any question of demand. While 1.2 in 2020 is something I can't predict, 1.2 million for 2018 and 2019 is impossible without increased pipelines long before the second half of 2019. So, I think it is way conservative.George Kaplan , 06/18/2018 at 4:47 amThey say "We believe we are 6-9 months ahead of consensus with our oil forecast. Why is no one else seeing what we see?." Obviously they haven't been reading POB for the last two years.Energy News , 06/18/2018 at 5:40 amSLB seems to agree with Simmons, that outside of OPEC & the USA overall World oil production is going to continue fallingGuym , 06/18/2018 at 9:06 am
2018-06-12 Schlumberger Investor Presentations – Wells Fargo West Coast Energy Conference
aggregate base decline, which increased from approx 5% in 2015 to around 7% in 2017. Given this acceleration, it is probably not realistic to expect the new projects slated to come online during the next few years to be enough to reverse production decline outside of the US and Middle East.
Some slides on Twitter
Simmons charts https://pbs.twimg.com/media/DfcPDiBV4AMwNH2.jpgPOB made it possible to piece together in my own way, otherwise I would be like most. Staying confused with constant conflicting info. Predicting price is virtually impossible, as is demand to a large extent. But, when supply is ready to fall off a cliff, then being exact is not required.Dennis Coyne , 06/18/2018 at 11:19 amGuym,
A simple way to think about C+C demand is to assume over the long run that supply and demand will be roughly equal (though of course there will be short term imbalances which changes in the oil price over the short term will try to correct). From 1982 to 2017 C+C output grew at an average annual rate of about 800 kb/d. It is probably safe to assume that oil demand will continue to grow at roughly that pace in the absence of a severe global recession and those are pretty rare. I define a "severe global recession" as one where real World GDP (constant prices) based on market exchange rates decreases over an annual cycle for one or more years. Since 1900 there have been two cases where this occurred, the Great Depression and the Global Financial Crisis (GFC) in 2008/2009. These have been on roughly a 60 to 70 year cycle (a previous crisis occurred in 1870, but this might have only been a US crisis and possibly not a global one.)
In any case, my guess is that a Global economic crisis may result a the World tries to adjust to declining (or stagnant) World Oil output after 2025, probably hitting around 2030 to 2035. If economists re-read Keynes General Theory and respond to the crisis with appropriate policy recommendations, the economic crisis may be short lived. On the other hand a World response similar to the European response to the GFC, where fiscal austerity is considered the appropriate response to a lack of aggregate demand (this was also Herbert Hoover's response to the 1929 Stock Crash), then a prolonged deep depression will be the result.
Hopefully the former course will be chosen.
Jun 21, 2018 | peakoilbarrel.com
Watcher x Ignored says: 06/19/2018 at 12:15 amBP's Proven Reserves tab, historical says some interesting things:
US reserves did not grow or shrink last year 50B.
Canada reserves shrank about 1%. Weird.
Brazil reserves grew 1% but are down a lot from 2014.
KSA flat. Venezuela Orinoco reserves slight uptick 0.4%.
The somewhat vast majority of countries say their reserves are flat in 2017 vs 2016. They pumped billions of barrels, but no change to reserves for . . . lemme count . . . 36 countries (of which the US was one).
World as a whole reserves total declined 0.03%.
BP's flow report is "all liquids". Dunno if that is consumption, too. And if reserves . . . reserves are in a footnote. Crude, Condensate AND NGLs. Probably excludes algae.
Jun 21, 2018 | peakoilbarrel.com
Guymx Ignored says: 06/19/2018 at 11:46 amhttps://oilprice.com/Energy/Crude-Oil/US-Outstrips-Saudis-In-Largest-Recoverable-Oil-Reserves.html
What? Me worry? Rystadt says US has 79 more years of oil still available. Of course, that is the imaginary oil. They admit that commercially recoverable oil in the world only has 13 years left. Where did we pick up another 50 billion of imaginary oil in the US this year?
Jun 20, 2018 | peakoilbarrel.com
alimbiquated x Ignored says: 06/18/2018 at 6:30 pmAnyone careto comment on the quality of Russianoil?Watcher x Ignored says: 06/18/2018 at 9:39 pm
http://uawire.org/europe-cuts-back-on-russian-oil-purchases-by-20-due-to-poor-qualityread deep into the article -- the best oil goes to China. Europe gets only what is left. Haven't needed it, but the North Sea is dying. Iran is the next supplier but if sanctions eliminate them, Russian oil of whatever quality will be the only choice.
Or Europe could ignore sanctions, if they have the courage.
Jun 20, 2018 | peakoilbarrel.com
Don, 06/20/2018 at 11:16 am
I wanted to make a comment about the OPEC(and Russia) meeting coming up and a possible production increase. The speculation going around is that OPEC and Russia might increase production up to 1.80 mbpd. The minimum production increase would be around 500kbpd. What is the most likely production increase based on past production?
The only four countries that have any ability to increase production are
1) Russia: Current production 10.9mbpd. High production 11.3mbpd Difference -400kbpd
2) Saudi Arabia: Current production 10.0mbpd. High production 10.6mbpd Difference -600kbpd
3) UAE: Current production 2.9mbpd. High production 3.10mbpd Difference -200kbpd
4) Kuwait: Current production 2.70mbpd. High production 2.8mbpd Difference -100kbpd
The high watermark in production for these countries happened from Mid 2016 to Mid 2017. Currently these four countries are producing about 1.3mbpd below their all-time high production limits. Ask yourself what is the likelihood that these four countries will increase production to all-time highs and potentially surpass their highs which would be required to increase production to 1.80mbpd? When OPEC did announce production cuts at the end of 2016 many believe they had increased production to unsustainable levels to give each country a higher quota from the production cuts. The guys a Core Labs believed they had to cut because it would have threaten the long term integrality of their fields.
My guess is that the most OPEC and Russia can bring back for a sustainable period is about half of the 1.30mbpd they reduced from their production highs .maybe about 600kbpd
Jun 20, 2018 | peakoilbarrel.com
Watcher, 06/13/2018 at 12:54 pm
The bible is out. A few surprises.
India's oil consumption growth was only 2.9%. Derives from their monetary debacle early in the year. We should see signs of whether or not that corrects back to their much higher norm before next year.
China consumption growth 4%. Higher than India. Clearly an aberration.
KSA consumption actually declined fractionally, which allows Japan to still be ahead of them in consumption.
US consumption growth 1%. So much for EV silliness.
Jun 20, 2018 | peakoilbarrel.com
Energy News: 06/19/2018 at 8:28 am
Permian pipelines and steel tariffs – it's a good update but the article doesn't give any clues as to how long it might take for US steel mills to make the type of pipes that are now being imported.
HOUSTON (Reuters) – Major U.S. energy companies including Plains All American Pipeline, Hess Corp and Kinder Morgan Inc are among many seeking exemptions from steel-import tariffs as the United States ratchets up trade tensions with exporters including China, Canada and Mexico.
The pipeline industry could face higher costs from tariffs as about 77 percent of the steel used in U.S. pipelines is imported, according to a 2017 study for the pipeline industry. Benchmark hot-rolled U.S. steel coil prices are up more than 50 percent from a year ago, according to S&P Global Platts.
Guym,06/19/2018 at 9:36 amSignificant. It may not prevent the pipelines being built, but it will, no doubt, delay the timing of the start to completion timeline. Extended starts and stops on construction would be extremely expensive. A 25% tariff on oil to China is also a game changer. That's about 600k a day that now has questionable outlets. India is going to have about 600k a day it won't buy now from Iran, so that's a possibility. Not as big of a game changer as in the future, when US production begins increasing, again. I could speculate that there is some timing connection between India foregoing Iran purchases, and the China tariff decision. Whole Permian scenario keeps shifting down. Pipeline completion dates are more questionable, and the future export capabilities have a bigger question mark.
Goldman states that most of the producers have no plans to cut back in the Permian. What else would they tell the investment bank who helps determine their stock price? Yeah, we are screwed, and currently looking for a buyer?
Jun 20, 2018 | peakoilbarrel.com
Energy News , 06/12/2018 at 2:34 pm2018-06-12 – CARACAS/HOUSTON (Reuters) – Venezuela's state-run PDVSA and partners have halted operations at two upgraders that convert extra-heavy oil into exportable crude and plan to stop work at two others, according to six sources close to the projects, a move aimed at easing the strains from a tanker backlog that is delaying shipments.Guym , 06/12/2018 at 3:27 pm
https://www.reuters.com/article/us-venezuela-pdvsa-crude/venezuelas-oil-upgraders-to-be-halted-amid-export-crisis-sources-idUSKBN1J82FXAs I said above, the article points out that if they can't relieve the bottleneck; they will be forced to slow or shut in production.Energy News , 06/12/2018 at 4:11 pm2018-06-12 (Argus Media) So far in June, the outlook for Venezuelan production is grimmer. Venezuela was producing about 1.5mn b/d at the start of May, including roughly about 800,000 b/d in the Orinoco oil belt and a combined 700,000 b/d in the company's eastern and western divisions. But output in early June has dropped to 1.1mn-1.2mn b/d, according to three PdV officials.Guym , 06/12/2018 at 6:09 pm
https://www.argusmedia.com/pages/N ewsBody.aspx?id=1697240&menu=yes?utm_source=rss%20Free&utm_medium=sendible&utm_campaign=RSSBigger drops coming, soon.George Kaplan , 06/12/2018 at 11:31 pm
I agree with his take, mostly. At this level of confusion, and lack of money and personnel capital, it's not fixable.
The basic problem is the General he put in charge did not understand Maduro's command. He thought Maduro said oil production needs to decrease a million barrels a day.They are losing workers especially the technical managers, don't have money for spares and are going to shut down to repair (I note it says repair not just maintenance for two of them) and restart all four of the most difficult operations in refining, all at the same time. These are high temperature fluidised beds with some pretty horrible waste product (highly viscous, toxic coke in heavy oil residue sludge which can block pipes and burners and corrode all sorts of stuff). Shutting them down fro extended periods is not always a great idea at the best of times. Planned maintenance for such things is usually phased so only one is down at a time to ensure all the planning and purchasing can be completed and the experts are available to go to each plant in turn. The plants need catalyst replacement which costs money, and tends to be more frequent if the plant isn't in very good condition or isn't being operated optimally (the operators need to be well trained). Be interesting to see how long it takes and how many come back, it's quite possible the best case will be cannibalising a couple to keep the others going.Stephen Hren , 06/16/2018 at 12:59 pm
As to: "If PDVSA cannot alleviate the shipping bottleneck, the company and its joint ventures could be forced to slow or temporarily pause production at some Orinoco Belt oilfields," that is already happening: they have dropped over half the rigs and might be down to none by September at current rate, without new wells and workovers heavy oil can decline pretty quickly.Good article in NYT about Venezuela's oil industry collapse.
Jun 20, 2018 | crudeoilpeak.info
Peak oil in Asia Pacific (part 1)This post uses data released by the BP Statistical Review in June 2018
Oil production seems to have left its bumpy 6 year long (2010-2015) plateau of 8.4 mb/d and is now back to 2004 levels of 7.9 mb/d, a decline of 6% over 2 years.
Base production is the sum of the minimum production levels in each country during the period under consideration. Incremental production is the production above that base production. In this way we clearly see that the peak was shaped by China, sitting on a declining wedge of all other Asian countries together. Note that growing production in Thailand and India could not stop that decline. Now let's look at the other side of the coin, consumption:
There has been a relentless increase in consumption since the mid 80s. The growth rate after the financial crisis in 2008 was an average of 3% pa.Chinese annual oil consumption growth rates have been quite variable between 2% and a whopping 16% in 2004 which contributed to high oil prices. Fig 4 also shows there is little correlation between GDP growth and oil consumption growth (statistical problems?). There is nothing in this graph that could tell us that the Chinese economy has a consistent trend to become less dependent on oil. In the years since 2011, oil consumption growth was around 60% of GDP growth.
Let's compare China with the US. China's oil consumption is catching up fast with US consumption.
On current trends, China's oil consumption would reach US consumption levels of 20 mb/d in just 14 years.
Contrary to misinformation by the media, the US is still a net importer of oil. Even blind Freddy can see that there will be intense competition for oil on global markets.
All governments who plan for perpetual growth in Asia (new freeways, road tunnels, airports etc) should fill in the above graph. Hint: We can see that Asia has diversified its sources of oil imports but is still utterly dependent on Middle East oil"Other Middle East" is Iran and Oman (as Syria and Yemen no longer export oil)
China is preparing for the future by building bases to secure oil supply routes:
Proven reserves have not changed much in the last years meaning that P2 and P3 reserves have been proved up commensurate with production. The reserve to production ratio is 16.7 years equivalent to an annual depletion rate of 6%, a little bit higher than a reasonable rate of 5% (R/P of 20 years).The depletion rates vary considerably and may only be approximate as oil reserves will have been estimated by using differing methodology and accuracy. Indonesia's depletion rate is very high. Not shown in Fig 14 is Thailand where the depletion rate is off the charts (almost 50%) suggesting reserves are too low.
In part 2 we look at the oil balance in each country. Tags: BP Statistical Review , China oil demand , china peak oil , Middle East , South China Sea , South East Asia
Jun 20, 2018 | peakoilbarrel.com
Kolbeinh, 06/18/2018 at 6:21 amThere are some rumors that KSA has increased exports starting in May (about 0.5 m b/d more than prior months) by drawing even more from storage. If we are to believe OPEC production numbers from May which are steady, that must be the case. OPEC has essentially flooded the market with exports before the meeting on Friday. The nearest month Brent future changed to contango compared to closest month some weeks ago, but it has now all changed again to backwardation. Point being, it seems the physical market is getting tighter again and that the export flood may have something to do with the meeting. Or it could be that reduced exports from Iran, Venezuela and Libya are starting to impact the market.
If the market balance overall is to change from a a deficit to near balanced, production within OPEC has to be increased with almost maximum of whatever spare capacity available in my opinion. The assumption is that spare capacity in reality is smaller than stated by the agencies.
Jun 18, 2018 | www.veteranstoday.comJust as China topped the list of nations buying US oil, Beijing – retaliating to unilateral Trump economic threats – sent jitters through energy markets on Friday by threatening new tariffs on natural gas, crude oil and many other energy products.
On Friday, Beijing threatened to impose tariffs on US energy products in response to $50 billion in tariffs imposed by US President Donald Trump. Such tariffs would inhibit Chinese refiners from buying US crude imports, potentially crashing US energy markets and hitting the fossil fuel industry where it hurts the most: in shareholder approval.
"This is a big deal. China is essentially the largest customer for US crude now, and so for crude it's an issue, let alone when you involve [refined] products, too. This is obviously a big development," Matt Smith, director of commodity research at ClipperData, told Reuters.
According to US Energy Department figures, China imports approximately 363,000 barrels of US crude oil daily. The country also imports about 200,000 barrels a day of other petroleum products including propane.
The US energy industry has seen its profits boosted by fracking in domestic shale fields, which produce some 10.9 million barrels of oil per day.
The US is also exporting a record 2 million barrels per day, and encouraging countries like China to import more US energy products instead of those from Iran, after Trump recently withdrew from the historic Joint Comprehensive Plan of Action (JCPOA) 2015 nuclear arms deal with Tehran.
China is currently the largest buyer of Iranian oil as well, purchasing some 650,000 barrels daily during the first quarter of 2018.
According to Bernadette Johnson with the Denver, Colorado, energy consultancy Drilling info, tariffs will increase prices for other petroleum products including propane and liquefied natural gas.
"The constant back-and-forth about the tariffs creates a lot of market uncertainty that makes it harder to sell cargoes or sign long-term [trade] deals," Johnson noted, cited by Reuters.
In late March, the White House slapped trade sanctions on China, the world's second largest economy, including limitations in the investment sector as well as tariffs on $60 billion worth of products.
Citing "fairness" considerations, Trump referred to the car market, stating that China charged a tariff ten times higher on US cars than the US did on the few Chinese cars sold in the US.
Separately, in a bid to deliver on campaign promises, Trump announced his intention to impose a 25-percent tariff on steel imports and a 10-percent tariff on aluminum imports from an array of US allies, including the EU, Mexico and Canada. Those nations -- longtime allies to the US -- have promised retaliatory economic measures.
Trump has also reportedly mulled placing a 25-percent import tax on European cars, something that would significantly affect the highly-profitable US market for expensive German automobiles.
Jun 15, 2018 | www.msn.com
by Salma El Wardany (Bloomberg) Two of Libya's biggest oil ports stopped loading on Thursday after clashes erupted between rival forces for control of the country's economic lifeline, taking more barrels off the market just as OPEC debates whether to boost production.
Fighting at Es Sider and Ras Lanuf terminals led to the loss of about 240,000 barrels of Libya's daily oil production, state energy producer National Oil Corp. said in a statement Thursday. NOC evacuated staff from both terminals, which account for 40 percent of Libya's oil exports, and declared force majeure on shipments.
The disruptions come a week before OPEC nations hold key meetings in Vienna with other major producers including Russia to discuss if they should stick with a pact to restrain oil supply after prices topped $80 a barrel in May. Oil producers were already facing growing pressure, including from U.S. President Donald Trump, to boost supply to offset disruptions caused by the economic crisis in Venezuela and renewed American sanctions on Iran.
Libya's oil output has rebounded over the past two years, but remains well below the 1.8 million barrels a day the country pumped before the 2011 campaign to oust Muammar Qaddafi. That NATO-backed war gave way to years of fighting among rival Libyan groups in which the country's oil installations became prized targets.
Jun 15, 2018 | www.bloomberg.com
- National Oil Corp. declares force majeure at Zawiya terminal
- Western Sharara oil field was producing 200,000 barrels a day
Jun 09, 2018 | russia-insider.com
"Anyway, we're not going back to the Detroit of 1957. We'll be fortunate if we can turn out brooms and scythes twenty years from now, let alone flying Teslas." 10 hours ago | 1,690 41 MORE: Business The author is a prominent American social critic, blogger, and podcaster , and one of our all-time favorite pessimists. We carry his articles regularly on RI . His writing on Russia-gate has been highly entertaining.
He is one of the better-known thinkers The New Yorker has dubbed 'The Dystopians' in an excellent 2009 profile , along with the brilliant Dmitry Orlov, another regular contributor to RI (archive) . These theorists believe that modern society is headed for a jarring and painful crack-up.
You can find his popular fiction and novels on this subject, here . To get a sense of how entertaining he is, watch this 2004 TED talk about the cruel misery of American urban design - it is one of the most-viewed on TED. Here is a recent audio interview with him which gives a good overview of his work.
If you like his work, please consider supporting him on Patreon .
Quite the opposite of a dilettante, Kunstler has dug into the research on oil and related energy technologies, and is extremely well-informed, writing books on the subject. What he says implies a massive wealth transfer to Russia, Iran, and the Middle East, as the wells start to dry up.
The ill feeling among leaders of the G-7 nations -- essentially, the West plus Japan -- was mirrored early this morning in the puking financial market futures, so odious, apparently, is the presence of America's Golden Golem of Greatness at the Quebec meet-up of First World poobahs. It's hard to blame them. The GGG refuses to play nice in the sandbox of the old order.
Completely, totally, delusional
Like many observers here in the USA, I can't tell exactly whether Donald Trump is out of his mind or justifiably blowing up out-of-date relationships and conventions in a world that is desperately seeking a new disposition of things. The West had a mighty good run in the decades since the fiascos of the mid-20 th century. My guess is that we're witnessing a slow-burning panic over the impossibility of maintaining the enviable standard of living we've all enjoyed.
All the jabber is about trade and obstacles to trade, but the real action probably emanates from the energy sector, especially oil. The G-7 nations are nothing without it, and the supply is getting sketchy at the margins in a way that probably and rightfully scares them. I'd suppose, for instance, that the recent run-up in oil prices from $40-a-barrel to nearly $80 has had the usual effect of dampening economic activity worldwide. For some odd reason, the media doesn't pay attention to any of that. But it's become virtually an axiom that oil over $75-a-barrel smashes economies while oil under $75-a-barrel crushes oil companies.
Mr. Trump probably believes that the USA is in the catbird seat with oil because of the so-called "shale oil miracle." If so, he is no more deluded than the rest of his fellow citizens, including government officials and journalists, who have failed to notice that the economics of shale oil don't pencil out -- or are afraid to say.
The oil companies are not making a red cent at it, despite the record-breaking production numbers that recently exceeded the previous all-time-peak set in 1970. The public believes that we're "energy independent" now, which is simply not true because we still import way more oil than we export: 10.7 million barrels incoming versus 7.1 million barrels a week outgoing (US EIA).
Shale oil is not a miracle so much as a spectacular stunt: how to leverage cheap debt for a short-term bump in resource extraction at the expense of a future that will surely be starved for oil. Now that the world is having major problems with excessive debt, it is also going to have major problems with oil.
The quarrels over trade arise from this unacknowledged predicament: there will be less of everything that the economically hyper-developed nations want and need, including capital. So, what's shaping up is a fight over the table scraps of the banquet that is shutting down.
That quandary is surely enough to make powerful nations very nervous. It may also prompt them to actions and outcomes that were previously unthinkable. At the moment the excessive debt threatens to blow up the European Union, which is liable to be a much bigger problem for the EU than anything Trump is up to. It has been an admirably stable era for Europe and Japan, and I suppose the Boomers and X gens don't really remember a time not so long ago when Europe was a cauldron of tribal hatreds and stupendous violence, with Japan marching all over East Asia, wrecking things.
There is also surprisingly little critical commentary on the notion that Mr. Trump is seeking to "re-industrialize" America. It's perhaps an understandable wish to return to the magical prosperity of yesteryear. But things have changed. And if wishes were fishes, the state of the earth's oceans is chastening to enough to give you the heebie-jeebies. Anyway, we're not going back to the Detroit of 1957. We'll be fortunate if we can turn out brooms and scythes twenty years from now, let alone flying Teslas.
This will be the summer of discontent for the West especially. The fact that populism is still a rising force among these nations is a clue of broad public skepticism about maintaining the current order. No wonder the massive bureaucracies vested in that order are freaking out.
I'm not sure Mr. Trump even knows or appreciates just how he represents these dangerous dynamics.
Jun 05, 2018 | turcopolier.typepad.com
FB Ali , a day agoRe Saudi Arabia: I have previously referred to reports regarding the death of the Saudi Crown Prince, MbS, as a result of the AQ attack on his palace on April 21. Now, pictures are circulating of his funeral.Pat Lang Mod -> FB Ali , a day ago
There is so far no official announcement, but that means nothing.
My own hunch is that these reports may well be true. How long can the Saudis (and the Western media) conceal what has happened?If he was killed in the April 21 incident that would explain why the women activists have now been targeted.FB Ali -> Pat Lang , a day agoAgree. There is also the report that he was not at the Graduation Ceremony of the King Abdul Aziz Military College on May 19. (As Defence Minister, he would have been expected to attend).Harlan Easley -> FB Ali , 17 hours agoI have been following the story. A few things. Yes, I have seen the pictures of the funeral and his actual corpse prepared for burial under #mbs at twitter. The pictures are not the best. The size of the corpse and the nose and receding hairline along with the cheekbones and body size could definitely be MBS along with the eyes.FB Ali -> Harlan Easley , 2 hours ago
Second, I believe the trip by our Secretary of State was in response to the incident of April 21st. My hunch is the Crown Prince was gravely wounded and later perished at a Military Hospital.
Third, the night of the incident a twitter user named CivMilAir tracked the Royal Medevac jet leaving the airport near the gunfire and documented the airplane turning off its transponder. There was speculation concerning whether or not it was the Crown Prince that night on that thread. There was even push back from other twitter users based in Saudi Arabia. Even one demanding to know how this twitter user obtained this information.
Fourth, the recent trip of the Lebanon Prime Minister being called to Saudi Arabia when his schedule indicated no such trip.
Fifth, the outrage at the German Government and the reports from German businesses that the door to trade has been slammed shut this past month. I attribute this to the one and only exile prince from the Royal family, Saudi Prince Khaled Bin Farhan. living in Europe. He was granted asylum by Germany. There were 3 other exiles but they have been tricked or kidnapped back to Saudi Arabia. This Prince was advocating for the removal of the Crown Prince as recently as March 23, 2018.
And he asserted that he receives emails and other forms of communications from disaffected family members and the security services desiring for a change to be made.
Sixth, I noticed this week in the news that Crown Prince "MBS" has consolidated his control further this week by taking operational control of the construction and cyber security industries in the country. 35% of the Bin Laden group was basically stolen. I watched an interview of Saudi Prince Alwaleed bin Talal after his release from detention and he was clearly shaken. He was playing a confidence game where everything would go back to normal and mention how the Bin Laden group was back working on his projects. Then this? 35% gone overnight. Cyber security crack down or internet crackdown coming in Saudi Arabia?
Seventh, there is no way that MBS approved the recent arrest of the feminist. Not after his carefully cultured PR campaign in the United States.
Eight, where's Waldo?
Finally, here is what I find so fascinating. The KIng of Saudi Arabia is reported to have dementia. Unfortunately, I have a great deal of experience with this dreadful disease. My stepfather. 16 years. There is no King in charge of Saudi Arabia. In fact, if MBS was killed like I believe there is no legitimate line to the next ruler. Survival of the Fittest.
Here is my speculation. Al-Qaeda will be the cover story. Crown Prince MBS was killed by members of the Royal Family and other powerful individuals he made enemies with in his short rule.
The Royal family members who supported MBS are furious at Germany for the above stated reasons and lashing out in all directions. Threatening to invade Qatar if Russia provides them the S-400. I believe even President Trump's bizarre threat to put huge tariffs on German luxury automobiles because the German public doesn't want to buy crappy American cars like the Chevy Impala is his frustration over one of his essential architects on the plan to change regime's in Iran being eliminated.
A lot of torture and indiscriminate arrest is going on at this very moment in Saudi Arabia. The family appears split and trust lost. Time will tell.Thank you for that excellent rundown of events. I tend to agree with your "speculation".Vicky SD -> Harlan Easley , 4 hours ago
It would appear that there's no one in charge in SA at the moment. One can now expect a period of confusion, and lots of infighting between various factions trying to assert dominance, or just survive.
Considering MbS's policies, I think his exit is better for the Middle East. His tilt of SA policy towards the US and Israel is likely to be reversed.All you need to know is that Mr. Media Roadshow decided overnight to shun video cameras, and not come out for Pompeo. The guy is dead as a door knob. He made way too many enemies during the forced corporate retreat he hosted at the Ritz.EEngineer -> FB Ali , 17 hours agoThis is news to me. How big do you think the resulting power struggle would be if MbS was killed or incapacitated? I can envision outcomes that range from 2nd page news all the way up to Archduke Ferdinand grade but I don't have any feel for the probabilities.disqus_f5ibuyVBnZ -> FB Ali , 4 hours ago
If true, would it cause you to see the events of the last month in the region in a different light?Brigadier,SurfaceBook -> FB Ali , 8 hours ago
With MBS dead, how will Saudi react to MBS's previous Israel's right to exist scenario, along with Jerusalem being declared Israel's capital and the embassy move by DT?
How much longer will the Saudi and international press be able to remain silent on this?
Who do you think will now ascend the Saudi throne as heir apparent?
J.FB Ali , sir , it is so hard to get info in the AQ Attack that allegedly mortally wound MBS.. as for the shooting reported as a wayward drone , i recall this video (anyone can confirm the skyline if this is saudi city near palace ?) , the gunfire last for long time , far too long to be guards firing on a drone.Bill Herschel , 18 hours ago
myself , i think the attack succeed in wounding and ultimately kill the prince , otherwise why no public appearance at all ? ( if i recall , muslim have to be buried no more than 24 hours after death so that's why i assume he was wounded at first and the medical team failed to keep him alive)
do you think this is the 'blowback' from the massive shakedown that the prince did to his seniors ?Play HideHas DT done a single thing that has helped Israel? I would say no. In Assad's interview with RT he pointed out that the "opposition" first attacked Syria's air defenses at the beginning of the "civil war". Hillary wanted a "no-fly zone" over Syria. All that's missing is Victoria Nuland.EEngineer -> Bill Herschel , 3 hours ago
Your post vividly depicts how isolated Israel has become. I reiterate DT has done nothing to help Israel and everything to harm it. One is permitted to ask what's going on.The playground version: The neocons and Netanyahu think they're playing Trump, who in turn thinks he's use them. MbS wanted to be one of the cool kids and tried to get in on the action and might have gotten himself dead in the process.Pat Lang Mod -> Bill Herschel , 6 hours ago
All the while Putin and the SCO crew wait and play for time as they tangle each other up into an ever larger mess of their own making hoping to avoid, or minimize, whatever conflict is necessary to get them all to accept the coming multi-polar world order.
Perhaps in the future when they make a movie about this period it will be called "A Deal Too Far".
/sarcasmThe Israelis are quite pleased with him, but then, it is true tht they are short sighted fools.
Jun 03, 2018 | www.zerohedge.com
By the SRSrocco Report ,
The U.S. Shale Oil Industry utilizes a stunning amount of equipment and consumes a massive amount of materials to produce more than half of the country's oil production. One of the vital materials used in the production of shale oil is frac sand. The amount of frac sand used in the shale oil business has skyrocketed by more than 10 times since the industry took off in 2007.
According to the data by Rockproducts.com and IHS Markit , frac sand consumption by the U.S. shale oil and gas industry increased from 10 billion pounds a year in 2007 to over 120 billion pounds in 2017. This year, frac sand consumption is forecasted to climb to over 135 billion pounds, with the country's largest shale field, the Permian, accounting for 37% of the total at 50 billion pounds.
Now, 50 billion pounds of frac sand in the Permian is an enormous amount when we compare it to the total 10 billion pounds consumed by the entire shale oil and gas industry in 2007.
To get an idea of the U.S. top shale oil fields, here is a chart from my recent video, The U.S. Shale Oil Ponzi Scheme Explained :
(charts courtesy of the EIA - U.S. Energy Information Agency)
As we can see in the graph above, the Permian Region is the largest shale oil field in the United States with over 3 million barrels per day (mbd) of production compared to 1.7 mbd in the Eagle Ford, 1.2 mbd at the Bakken and nearly 600,000 barrels per day in the Niobrara. However, only about 2 mbd of the Permian's total production is from horizontal shale oil fracking. The remainder is from conventional oil production.
Now, to produce shale oil or gas, the shale drillers pump down the horizontal oil well a mixture of water, frac sand, and chemicals to release the oil and gas. You can see this process in the video below (example used for shale gas extraction):
The Permian Region, being the largest shale oil field in the United States, it consumes the most frac sand. According to BlackMountainSand.com Infographic , the Permian will consume 68,500 tons of frac sand a day, enough to fill 600 railcars . This equals 50 billion pounds of frac sand a year. And, that figure is forecasted to increase every year.
Now, if we calculate the number of truckloads it takes to transport this frac sand to the Permian shale oil wells, it's truly a staggering figure. While estimates vary, I used 45,000 pounds of frac sand per sem-tractor load. By dividing 50 billion pounds of frac sand by 45,000 pounds per truckload, we arrive at the following figures in the chart below:
Each month, over 91,000 truckloads of frac sand will be delivered to the Permian shale oil wells. However, by the end of 2018, over 1.1 million truckloads of frac sand will be used to produce the Permian's shale oil and gas . I don't believe investors realize just how much 1.1 million truckloads represents until we compare it to the largest retailer in the United States.
According to Walmart, their drivers travel approximately 700 million miles per year to deliver products from the 160 distribution centers to thousands of stores across the country. From the information, I obtained at MWPWL International on Walmart's distribution supply chain, the average one-way distance to its Walmart stores is about 130 miles. By dividing the annual 700 million miles traveled by Walmart drivers by the average 130-mile trip, the company will utilize approximately 5.5 million truckloads to deliver its products to all of its stores in 2018.
The following chart compares the annual amount of Walmart's truckloads to frac sand delivered in the Permian for 2018:
To provide the frac sand to produce shale oil and gas in the Permian this year, it will take 1.1 million truckloads or 20% of the truckloads to supply all the Walmart stores in the United States. Over 140 million Americans visit Walmart (store or online) every week. However, the Industry estimates that the Permian's frac sand consumption will jump from 50 billion pounds this year to 119 billion pounds by 2022. Which means, the Permian will be utilizing 2.6 million truckloads to deliver frac sand by 2022, or nearly 50% of Walmart's supply chain :
This is an insane number of truckloads just to deliver sand to produce shale oil and gas in the Permian. Unfortunately, I don't believe the Permian will be consuming this much frac sand by 2022. As I have stated in several articles and interviews, I see a massive deflationary spiral taking place in the markets over the next 2-4 years. This will cause the oil price to fall back much lower, possibly to $30 once again. Thus, drilling activity will collapse in the shale oil and gas industry, reducing the need for frac sand.
Regardless, I wanted to show the tremendous amount of frac sand that is consumed in the largest shale oil field in the United States. I calculated that for every gallon of oil produced in the Permian in 2018, it would need about one pound of frac sand. But, this does not include all the other materials, such as steel pipe, cement, water, chemicals, etc.
For example, the Permian is estimated to use 71 billion gallons of water to produce oil this year. Thus, the fracking crews will be pumping down more than 1.5 gallons of water for each gallon of oil they extract in 2018. So, the shale industry is consuming a larger volume of water and sand to just produce a smaller quantity of uneconomic shale oil in the Permian .
Lastly, I have provided information in several articles and videos explaining why I believe the U.S. Shale Oil Industry is a Ponzi Scheme. From my analysis, I see the disintegration of the U.S. shale oil industry to start to take place within the next 1-3 years. Once the market realizes it has been investing in a $250+ billion Shale Oil Ponzi Scheme, the impact on the U.S. economy and financial system will be quite devastating.
Check back for new articles and updates at the SRSrocco Report .
Gusher -> Stuck on Zero Sun, 06/03/2018 - 13:02 PermalinkJuggernaut x2 -> Gusher Sun, 06/03/2018 - 14:07 Permalink
Yawn is right. 64 trainloads a year is nothing. One large coal fired electric generation plant uses that much coal every month.jmack Sun, 06/03/2018 - 13:48 Permalink
Fracking is a capital-intensive scam and fueled by cheap $ from the Fed.hannah -> jmack Sun, 06/03/2018 - 19:17 Permalink
Sand, a material so abundant, you could not give it away, but now, it has worth, thanks frackers. His article a week or so back was claiming that all the sand had to be shipped out of michigan, a blatant lie, or perhaps he really is just that ignorant.
A fellow in west texas bought some sparse land a few years back for about $40,000, it was 10's of acres. He was offered $13,000,000 recently, which he lept at. then he found out the people that bought it from him, flipped it to a sand company for $200,000,000. Now he wants to sue.
the point being that technology can make formally useless things, worth more. This is the fundamental reason that economies grow. Knowledge adds value, making the pie larger for everyone.
Oil may be a ponzi scheme, who knows, if a trade war crashes the global economies and energy usage plummets by 20-50%, I would expect the deflationary environment he is talking about. On the other hand if that does not happen, and oil goes to $100 or $200 then we will hear a bunch of whining, but everything will keep chugging along.
and if graphene filters allow for the energy efficient filtration of salts from produced water, and those salts are then processed for the elements such as lithium found in them, and produced water becomes net profit stream instead of a net cost stream, then the whole equation changes, technology adding value.
A lot of if's, that is what makes the future interesting.webmatex Sun, 06/03/2018 - 14:45 Permalink
you are an idiot...all sand is not the same. sand runs the gamut of smooth and round to rough course edged. sand isnt that easy to find when you have to have a particular kind of sand.....jmack -> webmatex Sun, 06/03/2018 - 15:00 Permalink
Permium 1.1 million truckloads per day and + 71 billion gallons of water per year!
People in North America will be in serious need of fresh water soon, however, with fracking spoiling water nationally and the combined effect of increased earth tremors/potholes in vast areas, well mother nature is calling in the cards.
Combine that with GM food hidden in most products plus the millions of pharmaceutical lovers, poisoning their own water supplies and effecting most native species and perhaps a little radiation from Nukes and the Sun and the cell towers and a few miles of chem trails i don't give much hope for a sustainable North American future.
What you think?snblitz -> webmatex Sun, 06/03/2018 - 15:46 Permalink
I was just telling the second head growing out of my back, the other day, 'man this is the best it has ever been', and he said ' groik splish!' and bit me on the arm. So I would say we are of two minds on the matter.Angry Plant -> snblitz Sun, 06/03/2018 - 19:13 Permalink
You can make fresh water from sea water for about $2000 per acre foot using expensive california power. I think that comes to $60 per month for a family of 4 using the fairly high rate of water consumption by california residents.
(desalination plants already exist in Santa Barbara and San Diego, CA and there are desal plants all over the world)
80 gallons per day * 4 people * 365 days / 330000 gallons * $2000 / 12 months = $60
An acre foot of water is about 330,000 US gallons.
Reverse osmosis in the home runs about $75 per year and cleans up most of the problems.Red Raspberry -> webmatex Sun, 06/03/2018 - 17:07 Permalink
Now what about the cost of distributing that? See that the thing about getting water the old fashioned ways. Water actually cost nothing to make. The cost is building a system to distribute the free water. It also come with gravity assist moving water from high to low. That way you use natural property of water to flow from high places to lower ones. Now in your system you take sea water and have to move that up from sea level. That cost is addition to cost of converting sea water to fresh water.OCnStiggs -> webmatex Sun, 06/03/2018 - 17:15 Permalink
You left out the volcanoes...
Maybe we could substitute illegal aliens, or Obama-ites convicted of felonies for much of the frac-sand?
Think of how much money that would save vs incarceration costs!
If we moved up to insane Liberal idiots who were about to explode anyway because their Liberal world is crashing down, we'd further save the environment from all the silly electric cars they drive. Its a win-win!
Thanks for pointing out alternatives we never thought of before!
May 25, 2018 | observer.com
Also "However, a week after the coup speculations, the Crown Prince, along with Saudi King Salman, was seen at the opening ceremony of a huge entertainment resort Qiddiya – an ambitious multi-billion dollar project that is expected to include a Six Flags theme park, water parks, motor sports, cultural events and vacation homes." Sputnik International
Saudi Arabia's Crown Prince Mohammed Bin Salman, the 32-year-old media-savvy leader of the oil kingdom, has been unnaturally quiet recently, so much so that some in the Middle East media couldn't help but wonder if he is dead.
Bin Salman hasn't been seen in the public eye since his meeting with the Spanish royal family in on April 12. On April 21, heavy gunfire was heard near a royal palace in Riyadh, the kingdom's capital. Although Saudi Arabia's state news agency claimed it was a security force shooting down a toy drone that had gotten too close to the royal property, some wondered if the gunfire was in fact a coup led by Saudi royals trying to topple King Salman, Bin Salman's father.
Some of Saudi Arabia's enemies were pretty sure.
Last week, the Iranian newspaper Kayhan reported that the Crown Prince was hit by two bullets during the attack and may actually be dead, citing "a secret service report sent to the senior officials of an unnamed Arab state."
"There is plenty of evidence to suggest that the absence of nearly 30 days of Muhammad bin Salman, the Crown Prince of Saudi Arabia, is due to an incident which is being hidden from the public," the daily paper claimed.
To add credence to the speculation, Kayhan pointed out that Bin Salman was not seen on camera when the new U.S. Secretary of State Mike Pompeo visited Riyadh in late April, while his father, Saudi King Salman bin Abdulaziz Al Saud, and Foreign Minister Adel al-Jubeir were photographed.
May 29, 2018 | www.nakedcapitalism.com
How Wall Street Enabled the Fracking 'Revolution' That's Losing Shale Oil Companies Billions Posted on May 6, 2018 by Jerri-Lynn Scofield By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Justin has a degree in Civil and Environmental Engineering from Cornell University. Originally published at DeSmogBlog
The U.S. shale oil industry hailed as a "revolution" has burned through a quarter trillion dollars more than it has brought in over the last decade. It has been a money-losing endeavor of epic proportions.
In September 2016, the financial ratings service Moody's released a report on U.S. oil companies, many of which were hurting from the massive drop in oil prices. Moody's found that "the financial toll from the oil bust can only be described as catastrophic," particularly for small companies that took on huge debt to finance fracking shale formations when oil prices were high.
And even though shale companies still aren't turning a profit, Wall Street continues to lend the industry more money while touting these companies as good investments. Why would investors do that?
David Einhorn, star hedge fund investor and the founder of Greenlight Capital, has referred to the shale industry as "a joke ."
"A business that burns cash and doesn't grow isn't worth anything," said Einhorn, who often goes against the grain in the financial world.
Aren't investors supposed to be focused on putting money toward profitable companies? While, in theory, yes, the reality is quite different for industries like shale oil and housing.
If the U.S. financial crisis of 2008 has revealed anything, it is that Wall Street isn't concerned with making a "shitty deal" when it means profits and bonuses for its traders and executives , despite their roles in the crash.
Wall Street makes money by facilitating deals much like a Vegas bookie makes money by taking bets. As the saying about Las Vegas goes: "The house always wins." What's true about casinos and gambling also holds true for Wall Street.
Wall Street caused the 2008 financial crisis, with some of its architects personally benefiting. However, while a few executives profited, the result was a drop in employment of 8.8 million people, and according to Bloomberg News in 2010, "at one point last year  the U.S. had lent, spent, or guaranteed as much as $12.8 trillion to rescue the economy."
JP Morgan (along with much of Wall Street) required large sums of money in the form of bailouts to survive the fallout from all of the bad loans made, which brought about the housing crisis. Is JP Morgan steering clear of making loans to the shale industry? No. Quite the opposite.
As shown in this chart of which banks are loaning money to shale company EOG Resources, while all of the big players in Wall Street are in on the action, JP Morgan has the biggest bet.
To understand why JP Morgan and the rest of these banks would loan money to shale companies that continue to lose it, it's important to understand the gambling concept of "the vigorish," or the vig. Merriam-Webster defines vigorish as "a charge taken (as by a bookie or a gambling house) on bets."
Wall Street makes money by taking a cut of other people's money. To a gambling house, it doesn't matter if everyone else is making money or losing it, as long as the house gets its cut (the vig) -- or as it's known in the financial world -- fees.
Understanding this concept gives insight into why investors have lent a quarter trillion dollars to the shale industry, which has burned through it. If you take the vig on a quarter trillion dollars, you have a big pile of cash. And while those oil companies may all go bankrupt, Wall Street never gives back the vig.
Trent Stedman of the investment firm Columbia Pacific Advisors LLC explained to The Wall Street Journal at the end of 2017 why shale producers would keep drilling more oil even when the companies are bleeding money on every barrel produced:
"Some would say, 'We know it's bad economics, but it's what The Street wants.'"
And "The Street" generally gets what it wants, even when it is clear that loaning money to shale companies that have been losing money for a decade and are already deep in debt is "bad economics." But Wall Street bonuses are based on how many "fees" an employee can bring to the bank. More fees mean a bigger bonus. And loans -- even ones that are clearly bad economics -- mean a lot more fees.Shale Oil Companies Are 'Creatures of the Capital Markets'
In 2017 "legendary" hedge fund manager Jim Chanos referred to shale oil companies as "creatures of the capital markets," meaning that without Wall Street money, they would not exist. Chanos is also on record as shorting the stock of heavily leveraged shale oil giant Continental Resources because the company can't even make enough money to pay the interest on its loans.
And he has a point. In 2017 Continental spent $294.5 million on interest expenses, which is approximately 155 percent of its 2017 adjusted net income generation. When you can't even pay the interest on your credit cards, you are broke.
And yet in 2017, investor capital was still flowing, with Continental Resources among those bellying up to the Wall Street trough for another billion in debt.
" In 2017, U.S. [exploration and production] firms raised more from bond sales than in any year since the price collapse started in 2014, with offerings coming in at around $60 billion -- up nearly 30 percent from 2016, according to Dealogic. Large-cap players like Whiting Petroleum, Continental Resources, Southwestern, Noble, Concho and Endeavor Energy Resources each raised $1 billion or more in the second half of 2017."
How big of a problem is this business of loaning money to an industry burning through billions and burying itself in debt? So big that the CEO of shale company Anadarko Petroleum is blaming Wall Street and asking its companies to please stop loaning money to the shale oil industry. Yes, that's right.
In 2017, Anadarko CEO Al Walker told an investor conference that Wall Street investors were the problem:
" The biggest problem our industry faces today is you guys. You guys can help us help ourselves. It's kind of like going to AA . You know, we need a partner. We really need the investment community to show discipline."
The Wall Street Journal reports that Walker maintains: "Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means."
Imagine begging banks to stop loaning you money. And being ignored.
Growing production at any cost is the story of the shale "revolution." The financial cost paid so far has been the more than $280 billion the industry has burned through -- money that its companies have received from Wall Street and, despite the plea from Al Walker, continue to receive.
The Economist summarized the situation in 2017:
"It [the shale industry] has burned up cash whether the oil price was at $100, as in 2014, or at about $50, as it was during the past three months. The biggest 60 firms in aggregate have used up $9 billion per quarter on average for the past five years."
Higher oil prices are now being touted as the industry's savior but, as The Economist noted, the shale industry was losing money even when oil was $100 a barrel.
Still Wall Street keeps giving the shale industry money and the shale industry keeps losing it as it ramps up production. To be clear, this arrangement makes shale company CEO s and financial lenders very rich, which is why the trend is likely to continue. And why Continental Resources CEO Harold Hamm will continue to repeat the myth that his industry is making money, as he did at the end of 2017:
" For anybody to even put forth the suggestion we haven't had great expansion and wealth creation in this industry with horizontal drilling and all the technology that's come about the last 10 years, I mean, it's totally ridiculous."
No one will argue that Hamm and his partners on Wall Street are not extremely wealthy. That has happened despite Hamm's company and the rest of the fracking industry losing epic sums of money. The same year Hamm made that statement, his company couldn't even cover its interest expenses. To put that in perspective, Continental Resources couldn't even make the equivalent of the minimum payment on its credit card.Watch What the Industry Does, Not What It Says
Higher oil prices are yielding more stories about how 2018 will be the year that the shale industry finally makes a profit. Harold Hamm refers to it as Continental Resources' "breakout year." Interesting how potentially not losing money for a year is considered a "breakout year" in the shale industry .
As reported on DeSmog, the industry certainly got a huge boost from the recent tax law, which will help its companies' short-term finances. Continental Resources alone took home $700 million in tax relief.
Recent reports in the financial press detail how the new approach in the shale industry will be to focus only on profitable oil production, not just producing more barrels at a loss. As The Wall Street Journal put it in a headline: "Wall Street Tells Frackers to Stop Counting Barrels, Start Making Profits."
In that very article, Continental CEO Hamm assures that he is on board with this new approach, saying, "You are really preaching to the choir." But has Continental actually embraced this new approach of fiscal responsibility and restraint? Not so much.
The fracking firm appears to have done the opposite, increasing production to record levels along with the rest of the shale industry. Continental recently reported plans to drill 350 new wells at an estimated cost of $11.7 million per well, which adds up to over $4 billion in total costs on those wells. The company currently holds more than $6 billion in debt and less than $100 million cash.
How will Continental fund those new wells? Hamm has promised that going forward, there would be "absolutely no new debt." Perhaps Continental will fund it by selling assets because without more debt, Continental does not have the money to fund those new wells. However, if past is prelude, then Wall Street will happily lend Continental as much money as it wants. Why would Hamm say one thing and do another? Well, he personally has accrued billions of dollars while his company has burned through billions. Despite leading Continental to another money-losing year in 2017, Hamm took home a fat raise .
Louis Fyne , May 6, 2018 at 8:04 amjohnnygl , May 6, 2018 at 8:21 am
Funny how the news cycle will go nuts if -- insert public pension fund -- has 0.07% of its holdings in a gun stock.
But not a peep at 'golly aw shucks' Mr. Grandpa USA, Warren Buffet, over Wells Fargo its retail banking or its fracking enabling. or at (pal of chuck schumer and clintons) Jamie Dimon or USA-rescued Citi.
#resistanceCarolinian , May 6, 2018 at 9:05 am
Don't forget that warren buffet also owns the trains that eat a lot of the profits of the koch bros investments in the tar sands. That why they wanted that keystone pipeline soooooooo baaaadGee , May 6, 2018 at 9:51 am
The article could use an explanation -- for those of use who are financial dummies -- of who the investors are that are making these apparently foolish bets. If Wall Street is the bookie then who are the bettors? Or are the Wall Street banks using deposit money to invest in fracking?
On a recent drive through West Texas I noticed the landscape dotted with what looked like newish mini factories -- presumably fracking operations. Clearly it's not a low cost endeavor.jsn , May 6, 2018 at 9:56 am
I keep thinking that the whole enterprise was bankrolled specifically to crush oil prices and keep inflation tamped down, which provides much more profit to wall street via the assurance that the Fed's easy money policy lasts a lot longer.
All the rest of this talk about profitability is just BS cover story. It's also an employment plan, in the same way that bankrolling student loan debt was a a huge employment plan for administration and construction, and soaked up unemployment by lifting enrollment rates and taking people out of the labor market.
I think we forget how so much of what happened after the financial crisis was a way of getting around the fact that they wanted the stimulus so much bigger than the 1 trillion they didn't even manage to get. I mean, look at the for profit school industry – that was an obvious total racket and a joke, yet they threw money at it, then pretended to clean up the shocking unexpected mess after when it was safe to do so (when the economy was more in the clear.)
The wall street insiders make a mint trading the junk stocks up, then short the hell out of them when they know the game is over and make a mint on the way down.cnchal , May 6, 2018 at 10:14 am
I've been wondering the same thing. There must be a huge pile of non-performing debt on someone's balance sheet or it's being moved around to where significant write downs are happening, but I have no idea where either of those two things might be. Who are the stuffees? Is German banks buying subprime again?jsn , May 6, 2018 at 10:47 am
" If Wall Street is the bookie then who are the bettors?" It's a great question that leaves everyone guessing. My guess is pension funds, and calling them bettors is being kind.
A bit off topic but yesterday in links was an article about the long time it takes to sue Goldman Sachs. Now, it's good to see a little bit of trouble coming their way but the article describes the lady doing the suing as a sweet innocent young thing being mauled by the male predators at Goldman and her specialty was the "sale of convertible bonds", a fee generating bullshit jawb that made her more money in a year than a deplorable can dream of making in a lifetime.
There were two problems however. One, the sexual predator grabbing her was a bit of a sideshow and from reading the guts of the article, the much bigger one is about money and how the ladies of Goldman were being cut out from their rightful share of the fee-loot generated at Goldman Sachs.
Bernie Sanders: The business of Wall Street is fraud and greed.Stupendous Man - Defender of Liberty, Foe of Tyranny , May 6, 2018 at 11:28 am
Pension funds is a good guess but one would think the consistent losses would start to show somewhere. The bezzle at this point has to be approaching trillions.Michael Fiorillo , May 6, 2018 at 6:01 pm
The simple, short, response is "pension funds across the country, public and private, ARE evidencing/showing considerable shortfalls."
That doesn't equate with pension funds being involved in these types of investments, but we shouldn't be surprised if they are.lyman alpha blob , May 6, 2018 at 11:34 am
In the case of public pension funds, many of not most of the "shortfalls" are in fact intentional under-funding of the plans, with contributions to the funds being skimmed off by state governments and diverted into the general operating funds, because Taxes Bad.HopeLB , May 6, 2018 at 3:47 pm
No it isn't a low cost endeavor and that may be precisely how the scam works. Note that the article mentions at the end that Hamm who founded Continental has made billions personally while the corporation flounders.
So the question is, what else does he own?
I've mentioned this book a few times recently that I'm still in the middle of – Railroaded by Richard White . He points out that the 19th century railroad corporations were disorganized, poorly run, money losing enterprises. But that didn't stop people from investing in them and getting filthy rich. All you need is some fast talking and clever accounting. One example he mentions is that the railroads needed all kinds of supplies to keep things moving and so they would buy them from railroad logistics corporations or fuel from coal companies, etc. But guess who owned the suppliers? That's right, the railroad investors would set up separate companies to supply their own railroads and these companies were extremely profitable.
But the pool of investors in these supplier companies was limited to the smart money in on the scam. In essence, the initial well heeled investors set up the railroads so that they could deliberately fleece them. He gives the example of one of the coal companies charging the railroad three times the going rate, which beggared the railroad but lined the pockets of the select few investors who owned stakes in both companies.
I suspect that something similar may be going on in the fracking industry. So to figure out the whole scam, you would need to know if the logistics companies are making a profit and is there any common ownership between those companies and the frackers.
Also, for anyone interested in the shady world of corporate finance and how it came to be in the US, I can't recommend the book linked to above enough. One other aspect I found fascinating is how the railroad investors turned to Europe and specifically the Germans to buy their bonds when they couldn't find enough suckers stateside. Reminds me quite a bit of the mortgage crisis a decade ago that spilled into Europe.
The other book I recently read was The Whiskey Rebellion by William Hogeland which discusses finance and taxation during the period just after the American Revolution. Shorter version – Alexander Hamilton was a crook who deliberately set up a financial system to ensure that the rich get richer off the labor of the rest of us.
The more you learn about the history of this country, the more you realize that there really is nothing new going on and the financial crooks of today are just following in the footsteps of their grifter forebears. And maybe someday they too will have cities named after them or at least a statue in the public square, because the US of A does love its con men.SimonGirty , May 7, 2018 at 5:24 am
Thank you very much for the book recommendations! Maybe their back up investments are in "fixing" the externalized, environmental costs e.g. water filtration systems that remove radiologocals/heavy metals from municipal supplies with the cost of purchasing being inversely portional to the extent of privatized ownership permitted?
- https://grist.org/article/2011-02-28-pittsburgh-drinking-water-radioactive-fracking-natural-gas-times/bones , May 6, 2018 at 6:22 pm
We spread the radium & strontium flavored "produced water" on as a replacement for road salt. Slickwater fracking of the Marcellus became sellable, after Katrina messed up Shell's deep water platforms in the Gulf (ie: a Democrat administration in PA, allowed fracking in a huge reservoir, 1/4 mile from two 40yr old reactors and "watering down" return water to "permissable levels" of toxic substances illegal to disclose to the 850,000 folks drinking "treated" water. (note the dates?)
https://vimeo.com/44367635 https://www.propublica.org/article/wastewater-from-gas-drilling-boom-may-threaten-monongahela-riverJohn k , May 6, 2018 at 12:29 pm
Hogeland's book Founding Finance is also great. Michael Perelman's book Railroading Economics is worth a read. The founders of economics in the US were looking at the example of the railroads and other corporations and acknowledging that competition was destructive and wasteful, but in their textbooks for college students they pushed the simplistic and misleading models that came to define neoclassical economics.drumlin woodchuckles , May 6, 2018 at 5:24 pm
I know nothing, but: Banks can fund loans by creating deposits and then carry the debt on their books as assets. And they can be hidden there, their assets are secret. If the stuff can't be paid back it's toxic, just like subprime in 2008 .
And the party goes on until rising rates push the economy into recession, banks stop rolling over loans, the borrowers go to the Wall, etc.
And then what? The usual thing is for gov to bail out the Tbtf banks rather than take them over, and sack or jail the officers because can't hurt the biggest donors. But if it all hangs together until 2020 and Bernie wins there might be a change in the script.Carey , May 6, 2018 at 8:13 pm
If Sanders thinks of running again, he should say something basically like . . .
" If I am elected, I will have in place some responses ready to roll out and apply when the next crisis and depression breaks out during my term." And he could say why he is predicting a "next crisis and depression". If he were to get elected and then we had a next crisis and depression during his term, he would get public credibility for having predicted it. And he might have more political latitude for "doing the FDR thing" in response.rd , May 6, 2018 at 11:28 am
I think that would be an excellent thing for him to do, with regard to the People, except it might well get him JFK'd.drumlin woodchuckles , May 6, 2018 at 5:25 pm
Many corporations, education institutions have pulled out of the fossil fuel industry investment funds, a cursory reading of the press will give you an updatejohnnygl , May 6, 2018 at 8:18 am
Have they pulled out of the fossil fuel inVESTment industry as well as pulling out of the fossil fuel INdustry itself?Jim M , May 6, 2018 at 8:28 am
Great piece! Thanks for posting. I'm going to try and shop this around at work wish me lucklyman alpha blob , May 6, 2018 at 10:13 am
My comment is a question – thanks in advance for your input: How does Wall Street fare when oil companies who they lent money to, go into bankruptcy?bones , May 6, 2018 at 6:28 pm
My guess is that even thought the banks aren't necessarily lending directly to the frackers and the fees they collect are lucrative, they still have some skin in the game somehow. The investors who are putting up the cash must have got the money from some bank or another. So the banks wouldn't put up this much money without some guarantee they would be made whole when it all goes belly up.
And I can't think of a bigger wink and a nod than what happened about ten years ago after the banks blew up the mortgage industry. If Uncle Sugar came to the rescue then, I think it's safe for them to assume it will happen again. After all, their friends run Treasury and the Fed.John Zelnicker , May 6, 2018 at 3:21 pm
And see article in FT posted in links a couple days ago "liquidity ousts debt as the big market worry." It provides some charts showing that banks are shifting away from holding debt and playing more of the role of broker (with some anti-regulation propaganda thrown it as editorial spin).The Rev Kev , May 6, 2018 at 8:36 am
May 6, 2018 at 8:28 am
One of the things the banks frequently do when their borrowers go into bankruptcy, is to participate in the debtor-in-possession financing that the bankruptcy court guarantees to be repaid. This allows them to earn some interest to offset any losses.
If the fracking companies don't go bankrupt, the debt will be rolled over continuously until the whole system collapses and the Fed bails out the banks again.
Rinse and repeat.Jim Young , May 6, 2018 at 10:19 am
I guess that all the money pumped (no pun intended) into fracking must have originated in the several trillion dollars worth of Quantitative Easing funds created in the past decade. All that money sloshing around had to go somewhere. Maybe the only good news is that this will be all one way to cancel some of these excess funds. The bad news is that supporting an insupportable industry will screw up huge tracts of land and water supplies for god knows how long.kev4321 , May 6, 2018 at 9:45 am
Though not as "profitable" as converting as much energy production as possible to solar, wind, and Pumped Storage Hydro (to store otherwise wasted "free" energy at 1/20th the cost of batteries), it seems inevitable that people will not keep paying so much extra for what should be much cheaper energy.
I don't know what price the planet and ones keeping us on too expensive energy will pay in the long run (financial market losses by suckers, or tax payers for Citizens United enabled politicians and phony regulators), but I suspect the ones that see the inevitable are getting as much profit as they can, while they can, and leaving so many more holding the bag (financially, and in abused environment).
There are some that will make wiser investments in more sustainable energy, as they accept lower returns more in line with energy production at much better cost benefit ratios (which are also less environmentally damaging).
See https://www.hydro.org/wp-content/uploads/2018/04/2018-NHA-Pumped-Storage-Report.pdfsteven , May 6, 2018 at 9:48 am
Perhaps Wall Street and the banks are playing a larger game. When the U.S. had $4.00+ gasoline there was a real motivation to rework transportation systems and rely less on cars. Now, with the lower oil prices we are back to SUV's and pick-up trucks. So maybe a loss leader in the fracking scam has preserved a much larger cash cow in auto finance. There is also the whole oil services industry to consider. With new conventional discoveries at an all time low, what would the oil services sector do if there were no fracking?pretzelattack , May 6, 2018 at 10:15 am
Can't help but wondering if this isn't all part of the neo-conservatives and their 'Great Games'. Since 1971 and the peak of conventional oil production in the US, the country has been a power in decline, economically if not militarily. If, as Frederick Soddy wrote almost a hundred years ago "Life is fundamentally a struggle for energy", then the country which controls that energy controls life on our planet. (I believe Kissinger said much the same thing.) This has all kinds of implications for issues from world (Middle East) peace and transitioning to renewable energy sources. Accidents of geology have left Middle Eastern countries with most of the world's remaining easily exploitable sources of conventional oil – and also as holders of much of the US and Western government debt upon which the international monetary system is based.
Free the world from its dependence on fossil fuels and you free it from its dependence reserve currencies, US government and Wall Street-created debt. I wish Hudson would return to the theme which introduced me to his work, Super (monetary) Imperialism . End it, i.e. replace the free lunch international monetary system from which the US and its 'exceptional people' derive the funds to spread murder and mayhem around the world, and you open at least the possibility for the world to enjoy a little peace and get to work on serious problems like climate change.
I also can't help but wonder if Reagan shouldn't be most remembered for his instructions to White House maintenance personnel to 'take down those solar panels'. This is eight years after Hudson published Super Imperialism – more than enough time for at least policy makers, drawn mostly from the ranks of finance, to understand 'the game' (and the orders from Saudi Arabia they must follow if they wished to keep playing.) Fracking is / was just a feeble attempt to show some independence which it and the rest of the world do NOT have so long as they remain hooked on the Middle East's 'ancient sunlight'.Arizona Slim , May 6, 2018 at 2:42 pm
i'll always appreciate carter for putting them on.jsn , May 6, 2018 at 8:56 pm
They were installed on the roof so that the White House kitchen could have hot water. And they didn't work well. So, Reagan had them removed. ISTR reading that a photovoltaic array was installed while Obama was president.Chauncey Gardiner , May 6, 2018 at 9:59 am
"Life is fundamentally a struggle for energy"
This does appear to be at the core of human nature, particularly if you substitute "power" for energy as a term to include both physical BTUs, who's pursuit we share with all other animals, and the social relations that can be commanded with it which are a strictly human thing.
The question now front and center is, "is humanity capable of self-conscious restraint on power, even at the risk of extinction?"
I can only imagine survival for our species if we can make a religion of opposing "power" at the risk of life as a mater of faith. Power has to be a community resource used for community aims that intergenerationally sustain the community, but "the coordination problem" of large groups militates against this notion. A stretch I know, the limits of my creativity are showing!Bud-in-PA , May 6, 2018 at 10:22 am
Thank you for posting this excellent piece. However, I question whether the domestic shale oil industry is financially unprofitable when it is considered in the aggregate, or if it is just the exploration and production sector. Setting aside for a moment the huge environmental, health and other social costs associated with this industrial activity, there is a vast network of entities that depend on this debt-fueled oil extraction and development. They range from oil and gas steel pipe manufacturers in Youngstown and drilling rig manufacturers in Texas to tank railcar manufacturers in Louisiana to major railroads to refineries and petrochemical facilities to pipeline companies and to some extent the domestic auto industry and military, etc. No question the domestic shale oil extraction sector itself is not cost competitive with other global suppliers, but I am wondering about the cumulative secondary and tertiary economic and employment effects.
The primary problems with this industry sector lie in the enormous long-term environmental and social costs it imposes, maybe even raising existential questions. Then there is the issue of oil pipeline companies being granted eminent domain to deliver this oil for export when the nation as a whole is a major net importer. Is that really a "public purpose" for which the eminent domain laws were intended, or simply to line the pockets of a few?Telee , May 6, 2018 at 12:51 pm
You can thank our Federal Reserve for all of this!Carey , May 6, 2018 at 1:29 pm
Considering the environmental impact of Non-conventional drilling ( fracking ) it should be noted that although denied by the industry wells have a considerable leak rate which puts methane aint the atmosphere and threatens potable water supplies. In addition the uptick in fracking has suppressed the development of non fossil fuel energy production which leads us headlong into the 1.5 to 3 degree temperature elevation that the Paris agreement seeks to avoid. The following links are a good introduction to these dangers. It seems likely that human intelligence will prove to be a lethal mutation.
https://www.youtube.com/watch?v=PGfIjCG-zB4jfleni , May 6, 2018 at 4:13 pm
What happens when the true costs of fracking- to the land, soil, water, and communities- become part of the equation? That can't come soon enough, in my view. The squandering of vast natural resources here in the USA! is just so saddening.VietnamVet , May 6, 2018 at 7:22 pm
At least the poor warehouse worker knows he doesn't have the time, so he carries his new P-bottle just in around in case; maybe the frack-daddies should wake up and start packing new bottles!Luke , May 7, 2018 at 1:35 am
This is a good post. It is an existential question.
If I remember my lessons from NC, in 2007 it was clear that the subprime mortgage securitization scheme would tank as the housing market collapsed. The short spread bettors couldn't get anyone else to see what was really happening. Then suddenly Bear Stearns was sold, Lehman Brothers went bankrupt and AIG had to be rescued.
I assume that Wall Street will continue to make loans out of thin air and pocket the Vig. The Fed assures that the banks have an infinite money supply with deregulation and not forcing the banks to write off their bad loans. This is similar to the MMT funding of the military's never ending overseas wars. Wars end – badly most of the time. Fossil fuels are finite. When the fuel costs more money to produce than it can be sold; the system collapses. So, does that portion of civilization that is dependent on that energy source if there is no alternative available.Tobin Paz , May 7, 2018 at 5:21 pm
I work in the oil industry. My job is as a type of low-level geologist, actually living and working out on oil rigs for weeks or months at a time. (I drive to the nearest town with a ChinaMart about once a week or so to wash clothes and buy more groceries.)
1) What the Saudis did in 2014 – 2016, maximizing output and spending ~2/3 of the 800 billion dollars equivalent in savings they then held to sustain their economy and regime, trying to bankrupt the U.S. oil industry (and secondarily, the Iranians, etc.) they quite literally cannot do again, anytime soon. They're close to broke, and fighting 1 – 2 wars.
2) The U.S. oil industry cut costs dramatically over the 6-9 months from the end of 2014. That was done primarily by cutting WAY back on drilling (active rig counts in ND declined by 90-95% over that time) and reducing what they would pay drilling and service companies. Mudloggers, MWD, directional drillers, casing crews, etc., saw their wages go down by over HALF, if they even still had a job. (Many to most did not.)
3) The oil industry is pretty busy right now, but is running into some constraints. Tops is they are still in the early stages of raising wages back up; I only make about 3/5 as much per day as I did in October 2014 (and there has definitely been some inflation in the prices I pay for most everything since then). Many workers that left were older, so just completely retired or found retirement jobs. Some bought trucks/farms/small businesses, so are reluctant (especially at these still-depressed wages by 2014 standards) to uproot and come back. Many just can't see the math working, while others (or their wives, which = to the same thing) just can't stomach facing another inevitable downturn at some point, with inevitable job loss.
4) More than a few oil companies have leases on which they must drill, either in a certain time period before drilling rights expire, or must actually drill to retain them. Further, while many oil industry investors sadly poorly understand the delay between "let's drill there" and having oil to sell, many do. Some, perhaps a lot, of drilling is done in anticipation of eventually (likely almost certainly) higher prices at some point.
5) Oil companies actually aren't that bad on the environment most of the time. 5-10,000′ feet down where the zones of interest typically are located, WGAF what is pumped or spilled, as no one travels or lives there. (Very thick, impermeable casing hydraulically seals off those zones from interacting with the surface, with innumerable impermeable strata between fracked zones and surface water wells, the latter rarely even 1000′ deep, and usually more like <200'.) By comparison, ethanol (whether from grain or sugar cane) requires vast acreage be farmed, using POL for many aspects (~90% of commercial fertilizers and nearly all pesticides have oil origins), while windmills chop up tens of millions of environmentally desirable, often endangered or protected, birds every year in the U.S., with little or no sanctions on the windmill companies.
6) People working in the oil industry typically have the same attitude I have about anti-oil protesters. That is, let the ones who don't use petroleum, complain. That's not just gasoline, diesel, heating oil, kerosene, etc., but also lubricants, pesticides, fertilizers, plastics, thermal insulation used in most dwelling and commercial buildings, and anything produced or manufactured or transported by same. No food, no clothes, no utilities, no transport besides feet -- that would kill easily 90% of Americans within 6 months. This is part of why I figure all the sincere environmentalists have already committed suicide -- and the rest are hypocrites.James McFadden , May 7, 2018 at 6:30 pm
No food, no clothes, no utilities, no transport besides feet -- that would kill easily 90% of Americans within 6 months.
That is the conundrum. However, abrupt climate change from continued burning of fossil fuels will kill many more.James McFadden , May 7, 2018 at 11:15 am
Regarding " The Saudis trying to bankrupt the U.S. oil industry" – The Saudis were not out to destroy the US oil industry. The US oil industry controls the Saudis through the US Military which keeps them in power. The Saudis were after the wildcat frackers who were not part of the global oil cartel (which includes US Big Oil). The wildcat frackers were not maintaining limited production quotas to maintain the monopoly oil price gouging. US Big Oil allowed the price collapse for long term goals with their Saudi partners. (Source: Antonia Juhasz) Apparently Wall Street was not in on the plan and kept the money flowing in the fracking Ponzi scheme.
Regarding: "while windmills chop up tens of millions of environmentally desirable, often endangered or protected, birds every year in the U.S., with little or no sanctions on the windmill companies." – This statement is just oil company propaganda. Quoting Stanford Prof. Mark Jacobson: "Wind turbines reduce bird kills relative to natural gas, coal, and oil for electricity and cause about the same bird death rate as nuclear power. A recent study published in Energy Policy found that wind turbines kill less than one‐tenth the bird deaths caused by each of natural gas, coal, and oil and similar deaths to that caused by nuclear power. As a result, wind turbines reduce bird kills relative to fossil energy sources. In addition, according to the American Bird Conservancy, the total number of bird deaths per year due to wind turbines (a few hundred thousand) is orders of magnitude lower than the numbers due to communication towers (10‐50 million), cats (80 million), or buildings (900 million)." Source: https://web.stanford.edu/group/efmh/jacobson/Articles/I/MythsvsRealitiesWWS.pdf
Regarding: "Oil companies actually aren't that bad most of the time." – The same can also be said of mass murders and child rapists. Oil company pollution and their global ruthlessness is well documented – and as the oil man I know once told me – to understand this industry all you need to do is watch the movie "There Will Be Blood."
Luke is an oil man who brings to mind the Upton Sinclair quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it." He would have fit right in with those men cutting down the last tree on Easter Island -- unconcerned about the future of their people. He thinks climate change is a crock because if it is true, then his job is destroying the planet. For anyone paying attention to global pollution and climate change, it is clear we need a rapid transition to renewable energy (solar and wind), a reduction in consumption (transition to more leisure time), and stewardship for the planet rather than the get-rich-quick mining mentality that leaves a giant mess for future generations to clean up – assuming human civilization survives. The economic/engineering outlines for this needed rapid transition are discussed by Prof. Mark Jacobson in several publications – here is the one for California. ( https://web.stanford.edu/group/efmh/jacobson/Articles/I/CaliforniaWWS.pdf ) Current non-planning for the coming disaster just leave us "circling the drain" -- waiting for the ultimate collapse.
"There's a sucker born every minute" and Wall Street is P. T. Barnum directing investors with the sign "This Way to the Egress." The con will last as long as investors have cash to burn and think "product growth" is equivalent to "profit growth" – or in the words of Lucy "Well, uh maybe there is no profit on each individual jar, but we'll make it up in volume."
May 29, 2018 | www.nakedcapitalism.com
By Irina Slav, a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
"I personally think none of us will be able to get around it," Vitol's chief executive Ian Taylor said last week, commenting on the effects that renewed U.S. sanctions against Iran will have on the oil industry.
The sanctions, to go into effect later in the year, have already started to bite. French Total, for one, announced earlier this month it will suspend all work on the South Pars gas field unless it receives a waiver from the U.S. Treasury Department -- something rather unlikely to happen. The French company has a lot of business in the United States and cannot afford to lose its access to the U.S. financial system. So, unless the EU strikes back at Washington and somehow manages to snag a waiver for its largest oil company, Total will be pulling out of Iran.
Other supermajors have not dared enter the country, so there will be no other pullouts of producers, but related industries will be affected, too, in the absence of a strong EU reaction to the sanctions. For example, Boeing and Airbus will both have their licenses for doing business in Iran revoked, Treasury Secretary Steven Mnuchin said , which will cost them some US$40 billion -- the combined value of contracts that the two aircraft makers had won in Iran.
Tanker owners are also taking the cautious approach. They are watching the situation closely, anticipating Europe's move, but acknowledging that the reinstatement could have "significant ramifications" for the maritime transport industry, as per the International Group of PI & Clubs, which insures 90 percent of the global tanker fleet.
Everyone is waiting for Europe to make its move even as European companies in Iran are beginning to prepare their exit from the country. Everyone remembers the previous sanctions, apparently, and they don't want to be caught off guard. But the signals from Europe are for now positive for these companies, of which there are more than a hundred .
Earlier this month, an adviser to French President Emmanuel Macron said that Europe's response to the thread of U.S. sanctions on Iran will be "an important test of sovereignty." Indeed, unlike the last time there were sanctions against Iran, the European Union did all it could to save the nuclear deal and has signaled it will continue to uphold it.
While some doubt there is a lot the EU can do against U.S. sanctions, there is one 1996 law dubbed a blocking statute that will ban European companies from complying with U.S. sanctions, which would put companies such as Total between a rock and a hard place.
European Commission President Jean-Claude Juncker said two weeks ago the commission will amend the statute to include the U.S. sanctions again Iran and that the amendments should be completed before the first round of sanctions kicks in in early August.
Many observers believe that if the sanctions are only limited to the U.S. and no other signatory to the nuclear deal joins them, the effect will be limited as well. As McKinsey analyst Elif Kutsal told Rigzone, "Market fundamentals are not expected to change structurally given that Iran doesn't export crude oil or refined products to the U.S. and exports go mainly to Europe (20 percent) and Asia Pacific (80 percent). Therefore, if the sanctions are only limited to the United States, then this could cause short-term volatility in prices until a new/revised agreement framework is put in place."
And this is where Iran's Supreme Leader Ayatollah Ali Khamenei scored a goal: He demanded that the European Union provide guarantees it will continue to buy Iranian crude. If it doesn't, he said, Iran will restart its nuclear program. Now, if this happens, the EU will not have much choice but to join the sanctions, and then hundreds of thousands of barrels of Iranian crude could be cut off from global markets.
However, even this will result in only a temporary decline in supplies, according to Kutsal, and others that believe that Asian imports from Iran will offset the effect from the U.S. sanctions. According to this camp, the only thing that can unleash the full effect of sanctions is the UN joining the sanction push against Iran.
May 23, 2018 | www.theamericanconservative.com
They gave Obama their tepid approval, then poured millions into a three-year campaign to kill it -- and won.By William D. Hartung and Ben Freeman • Benjamin Netanyahu's April 30 presentation accusing Iran of lying about its nuclear program was clearly aimed at a Western audience, and at one man in particular -- Donald Trump. Trump was already inclined to violate and exit the multi-party deal to block Iran's path to a nuclear weapon, but Netanyahu's presentation offered a timely addition to the administration's rhetorical arsenal. His PowerPoint performance, filled with misleading assertions and stale information dressed up as new revelations, was referenced by Trump as part of the justification for abandoning the nuclear deal.
While this garnered headlines, another U.S. ally -- Saudi Arabia -- had been orchestrating a quieter but equally effective lobbying and public relations push to dismantle the deal. The Saudis' arguments were used just as much, if not more, by Trump in justifying his decision for the U.S. to walk away from a carefully crafted agreement that even some of his own military leaders had acknowledged was working.
The Saudi lobby's push began long before the Joint Comprehensive Plan of Action (JCPOA) was formally announced on July 14, 2015. In fact, Saudi lobbyists had been working behind the scenes in the U.S. for years to ensure that the Kingdom's concerns were incorporated into any deal Washington would agree to with Iran -- if there was to be a deal at all.
In total, the Christian Science Monitor found that Saudi Arabia spent $11 million dollars on Foreign Agents Registration Act (FARA)-registered firms in 2015, and "much of this spending relates to Iran." They were also assembling former policymakers like Senator Norm Coleman, whose FARA disclosure mentions his work on "limiting Iranian nuclear capability." More recently, Coleman penned an op-ed in The Hill applauding Trump for leaving the deal without disclosing that he was being paid by the Saudi government.
Despite their strong opposition to any deal with Iran, however, many of the Saudis' concerns were ultimately addressed by the JCPOA, specifically their demands that "snapback" provisions be incorporated to quickly reinstitute sanctions if Iran violated the agreement and that inspectors have access to military and other suspect sites. Above all, the Saudis wanted an assurance that the deal would prevent Iran from acquiring a nuclear weapon. The agreement provided this and President Obama guaranteed it. This led to what many had thought impossible -- Saudi Arabia supporting the Iran deal . Obama sealed the grudging support of Saudi Arabia and other Gulf States in a May 2015 meeting at Camp David where he offered "reassurances" that the deal would not jeopardize their security, underscored by a promise to sell them even more weaponry.
But Saudi support for the deal was tepid and ephemeral at best. While publicly supporting it, the Saudis and their lobbyists in D.C. were quietly working to undermine it. Their arguments largely centered on two points: that the funds freed up by the deal would underwrite Iran's continued support for terrorist groups, and that the deal would do nothing to halt Iran's ballistic missile program.
While more than two dozen D.C. lobbying and public relations firms working for Saudi interests have registered under FARA since the U.S. agreed to the Iran deal, none has been more aggressively pushing these anti-Iran talking points than the MSLGroup (which acquired long-serving Saudi client Qorvis Communications in 2014). The MSLGroup, which has been paid more than $6 million dollars by the Saudis just since the U.S. agreed to the Iran deal, has distributed a variety of "informational materials" (formerly called propaganda ) on each of these topics, including a five-page fact sheet on " Iranian Aggression in Yemen ," and a press release on Iran being the " biggest state sponsor of terrorism ," among many others. And of course, the MSLGroup wasn't alone in spreading anti-Iran propaganda on behalf of the Saudi regime. For example, as recently as March 2018, the Glover Park Group distributed information on Iran's "region," and Hogan Lovells distributed " facts about the Houthis and Iran ," with a section on Iran's ballistic missiles.
With these talking points in hand, the Saudis saw an opportunity in the election of the neophyte Donald Trump to up the ante on Iran, and they invested heavily in courting him. Their efforts paid off handsomely as Trump made his first overseas visit to the Kingdom of Saudi Arabia, initially supported them in their spat with Qatar (until he learned the U.S. has a rather large military base in Qatar), kept U.S. military support and bombs flowing for a Saudi-led campaign in Yemen that has cost more than 10,000 civilians their lives, and agreed to sell them billions of dollars in additional U.S. weaponry of all sorts, from more munitions to a costly missile defense system. But Saudi Arabia still wanted more -- they wanted the U.S. out of the Iran deal.
While Saudi Arabia's most unlikely ally in this cause, Israel, took a very outspoken approach to move the president, which culminated in Netanyahu's misleading presentation, the Saudis used their well-financed lobbying machine to disseminate their message into the D.C. bloodstream. Their primary talking points found their way to the president's ears and became routine features of his justification for abandoning the deal. The White House statement justifying leaving the Iran deal is littered with Saudi lobby talking points, including that "The JCPOA failed to deal with the threat of Iran's missile program," and Iran "continues to fund terrorist proxies In Yemen, the regime has escalated the conflict and used the Houthis as a proxy to attack other nations." The president's remarks on the day he announced that the U.S. was abandoning the deal are also rife with language that could easily have been lifted from a Saudi-financed "fact sheet." In fact, Trump's second sentence, "the Iranian regime is the leading state sponsor of terrorism," is nearly verbatim off of an anti-Iran talking point distributed by the MSLGroup.
Why did the Saudis want the U.S. to abandon the Iran deal? A New York Times analysis identified what is probably the primary reason -- a fear that the deal would be the first step towards a U.S. rapprochement with Iran that would undermine the Saudi regime's power in the region in general and its campaign against Iran in particular. "Exiting the deal, with or without a plan, is fine with the Saudis," the Times wrote. "They see the accord as a dangerous distraction from the real problem of confronting Iran around the region -- a problem that Saudi Arabia believes will be solved only by leadership change in Iran."
Former State Department official Jeremy Shapiro underscored this point when he noted that the Saudis and their Gulf allies "believe they are in this existential conflict with the Iranian regime, and nuclear weapons are a small part of that conflict . If the deal opened an avenue for better relations between the United States and Iran, that would be a disaster for the Saudis," he said. "They need to ensure a motivation for American pressure against Iran that will last even after this administration."
One disquieting outcome of the trashing of the Iran nuclear deal is that Saudi Arabia has threatened to acquire a nuclear weapon of its own if the end of the agreement leads Iran to revive its program. This is not the first time Saudi leaders have made such threats. Just after Trump announced the U.S. would be leaving the deal, the Saudi foreign minister said that if Iran now builds a nuclear weapon his country "will do everything we can" to follow suit. So on top of its implications for increased conventional conflict in the region, the end of U.S. participation in the Iran deal could spark a nuclear arms race in the Middle East -- an outcome that would have been far less likely if U.S. participation in the Iran deal had been maintained.
The potential for a Mideast nuclear arms race is yet another example of the disastrous consequences of Saudi Crown Prince Mohammed bin Salman's reckless foreign policy, which includes everything from his regime's brutal, counterproductive intervention in Yemen, to the Saudi-led effort to impose a blockade on Qatar, to its promotion of regime change in Iran -- preferably carried out by the United States.
In the wake of the U.S. pullout from the Iran deal, we can expect the Saudi lobby, working in concert with administration allies ranging from Jared Kushner to newly appointed national security advisor John Bolton, to double down in its efforts to promote these ill-advised, dangerous directions for U.S. foreign policy in the region. Countering Riyadh's blatant influence peddling should be part of an expanded effort to distance the United States from its increasingly risky, counterproductive relationship with Saudi Arabia. If Mohammed bin Salman's aggressive policies -- and Saudi advocacy for them in Washington -- continue, Riyadh is one "friend" the United States should consider doing without.
William D. Hartung is the director of the Arms and Security Project at the Center for International Policy, and Ben Freeman directs the Center's Foreign Influence Transparency Initiative.
May 23, 2018 | www.haaretz.com
Qatar's foreign minister reacted publicly on Thursday to the recent wave of visits by leaders of U.S. Jewish organizations to his country at the invitation of the ruling Emir.
It seems the Qataris have figured out the best way to influence American foreign policy is to appeal to the real power brokers in the U.S..
The Sinister Reason Behind Qatar's Wooing of the Jews
Doha wants to influence D.C. elites. But rather than targeting Congress or the media, they're lavishly, and disproportionately, focusing on right-wing, pro-Israel Jews
One demand which the Qataris immediately acceded to was the suppression of the al Jezeera expose on the jewish lobby in American politics.
Israel Lobby Pressures Qatar to Kill Al Jazeera Documentary
Two extraordinary events have come together to place Al Jazeera in a vise-like squeeze that may result in the death of a major TV documentary expose about the power and operations of the Israel Lobby in the U.S. The same investigative team ... created the remarkable four-part film, The Lobby, about the UK Israel Lobby.
The new documentary follows a similar script. Al Jazeera recruited someone to infiltrate various Lobby organizations based in Washington...
...Haaretz published a story acknowledging that almost all of these American Jewish supplicants came to Qatar for one very special reason (there may have been others, but this one was key). They wanted the Al Jazeera documentary killed. They knew if it was aired it would make them look as shabby, venal, and crude as the UK series did.
Posted by: pantaraxia | May 22, 2018 11:03:42 AM | 6
May 20, 2018 | en.farsnews.com
The Saudi defense ministry announced in a statement on Sunday that Riyadh ruler Faisal bin Bandar bin Abdolaziz has attended the ceremony instead of bin Salman.
The statement declined to comment on the reason of bin Salman's absence while naturally the defense minister should participate in such ceremonies.
May 20, 2018 | en.reseauinternational.net
According to the Persian-language newspaper, Keyhan, a secret service report sent to the senior officials of an unnamed Arab state disclosed that bin Salman has been hit by two bullets during the April 21 attack on his palace, adding that he might well be dead as he has never appeared in the public ever since.
Heavy gunfire was heard near the Saudi King's palace in Riyadh Saudi Arabia on April 21, while King Salman was taken to a US bunker at an airbase in the city.
A growing number of videos surfaced the media at the time displaying that a heavy gunfire erupted around King Salman bin Abdulaziz Al Saud's palace in the capital, Riyadh.
Reports said the king and his son, Crown Prince Mohammed bin Salman, were evacuated to a bunker at an airbase in the city that is under the protection of the US troops.
While Saudi officials and media were quiet over the incident, there were contradicting reports over the incident. Witnesses and residents of the neighborhoods near the palace said a coup was underway, adding that the soldiers attacking the palace were guided by footage and intel they were receiving from a drone flying over the palace.
Saudi opposition members claimed that "a senior ground force officer has led a raid on the palace to kill the king and the crown prince".
Videos also showed that a growing number of armored vehicles were deployed around the palace. 'Bin Salman's special guard' then took charge of security in the capital. Riyadh's sky was then closed to all civil and military flights as military helicopters from 'Bin Salman's special guard' were flying over the palace.
Bin Salman was a man who previously often appeared before the media but his 27-day absence since the gunfire in Riyadh has raised questions about his health.
Saudi Arabia, the world's top oil exporter, has witnessed a series of radical political changes over the past year as Mohammed bin Salman ousted his cousin as crown prince and jailed well-known princes in an anti-corruption purge.
Moreover, bin Salman oversees social and economic reforms that have been censured by several powerful Wahhabi clerics.
Saudi Arabia is also embroiled in a long running conflict in its Southern neighbor Yemen, dubbed by the United Nations as the world's worst humanitarian crisis.
Notably, bin Salman made no media appearance during the April 28 visit of the newly-appointed US State Secretary Mike Pompeo to Riyadh, his first foreign trip as the top US diplomat.
During his stay in Riyadh, Saudi media outlets published images of Pompeo's meetings with King Salman and Foreign Minister Adel al-Jubeir.
This is while the state-run outlets used to publish images of meetings in Riyadh between bin Salman and former US secretary of state Rex Tillerson.
A few days after the April 21 incident, Saudi media published footage and images of bin Salman meeting several Saudi and foreign officials. But the date of the meetings could not be verified, so the release of the videos could be aimed at dispelling rumors about bin Salman's conditions.
It is not clear if bin Salman's disappearance is due to reasons such as him feeling threatened or being injured in the incident.
May 17, 2018 | www.dailysabah.comIt has been almost a month since Saudi Crown Prince Mohamed bin Salman made a public appearance, triggering questions whether the April 21 incidents at the Royal Palace had a role in his disappearance.
Several reports claimed that the security incident in April, what Saudi officials said was a result of a recreational drone flying near the king's palace in Riyadh, was indeed a palace coup attempt. Saudi Prince Salman was allegedly injured during the attempt, according to reports, mostly coming from Iran.
As a man who enjoys the public and media's eye, Salman's absence caught attention especially after he was not seen on camera during U.S. Secretary of State Mike Pompeo's first visit to Riyadh in late April.
The 32-year-old leader ousted his older cousin as crown prince last summer in a palace coup and then jailed senior royals as part of an anti-corruption sweep. Prominent clerics have also been detained in an apparent bid to silence dissent.
Those moves have helped Prince Mohammed consolidate his position in a country where power had been shared among senior princes for decades and religious figures exercised significant influence on policy.
But they have also fueled speculation about a possible backlash against the crown prince, who remains popular with Saudi Arabia's burgeoning youth population
May 15, 2018 | www.artberman.com
Labyrinth Consulting Services, Inc. artberman.com
... ... ...
SLIDE 4: Oil Prices & The Long-Term Debt Cycle
Petroleum Age after WWII produced unprecedented economic growth.
Oil shocks of 1974-1986 threatened to end that party.
Demand destruction & oil production bubble resulted in 18 years of cheap energy.
Debt re-started economic growth & debt-based growth of China challenged oil supply after 2004.
Second oil shock made unconventional oil possible. Zero-interest rates led to 2 nd oil bubble.
Longest period of high oil prices in history.
That bubble burst in 2014 and oil prices collapsed but without demand destruction.
Now, we are near the end of long-term debt cycle but in denial that the economic basics have fundamentally changed since the post-war era.
SLIDE 5: Low Interest Rates Created A Capital Bubble For Tight Oil & The Permian Basin
The oil-price collapse coincided with the end of QE 3 and the beginning of U.S. interest rate increases.
Continued low interest rates caused margin hunters to focus first on tight oil and then, specifically on the Permian basin.
$30 oil prices brought large capital flows to a select group of producers seen as winners.
Tight oil and Permian rig counts have more than doubled since August 2016. Rig countsincrease with expectation of $55+ oil prices
Increased rig count and fear of ongoing over-supply is a major drag on oil prices.
OPEC production cuts have balanced oil markets since early 2017 & some are now questioning the lower-for-longer paradigm that dominated the last 3 years.
SLIDE 6: The False Premise that Tight Oil Plays Are the New Swing Producer
No factual support for widespread belief that there is a price war between OPEC & U.S. tight oil.
OPEC/Saudi Arabia reacted pragmatically to price collapse & recovery.
Prime directive not to repeat mistake of 1982-1986 production cuts.
"Just-in-time production" is another baseless theory.
Shale output reacts to price just like all plays -- slowly & in long-period cycles.
Idea that U.S. shale is the new swing producer of the world also has no basis.
Being a swing producer means that there is sufficient spare capacity to turn on and off based on market signals. Shale plays have no spare capacity (they are just-in-time).
Even if DUCs provide some spare capacity, there is no decision-making process that governs 1000s of independent producers.
SLIDE 7: Shale Cost Reductions 90% Industry Bust, 10% Innovation and Efficiency
Lower costs of shale production widely attributed to technology and efficiency.
Price deflation accounts for 90% of lower costs because of a depression in the oil industry; 10% is because of technology & efficiency.
That is over for now and prices increased 8% in 2017.
Shale growth has more to do with outside capital supply than break-even prices.
Investors need to believe that significantly higher prices are coming.
"Buy low, sell high" not a sophisticated concept but was responsible for capital flow into tight oil after price bottom in early 2016.
Smart money has always believed in limits to oil supply.
- That will drive the next inflow of capital as markets understand the limits of tight oil supply.
SLIDE 8: Two of the Largest Tight Oil Plays are in Texas: Eagle Ford & Permian
- The Eagle Ford Shale play is expected to recover to 1.3 mmb/d by 2022 & then decline to 1.2 mmb/d by 2050.
- The Permian basin plays are anticipated to grow from 2.2 mmb/d in 2018 to more than 3.5 mmb/d by 2044 & then decline to 3.4 mmb/d by 2050.
May 15, 2018 | community.oilprice.com
(edited) Report postOn 5/14/2018 at 6:05 PM, Carlsbad said: So I guess the question is, then, how do we see the oil market, fundamentally, in that timeframe? Doesn't look great to me, nor does it look disastrous. Prices are too high right now, but demand is still strong and will be for some time to come. U.S. shale doesn't always follow fundamentals, though. They seem to binge and purge, depending on their level of maturity.
Although it appears that we are basically on the same page, I sense one significant difference in our understanding of the fundamentals, Carl. When I apply sound logic to my review of past history, I conclude that the price of oil is not a function of supply/demand levels. In other words, high demand does not cause high prices and plentiful supply does not cause low prices. Oversupply and undersupply are actually impossible situations. Consumption draws out whatever supplies that it needs at whatever price is in vogue at that moment. Supply always matches consumption at every price level. If you question this assessment, I can show you historical data that refute whichever side of the supposed supply/demand-caused price moves that you suggest.
Moving on, I agree with your assessment that prices are too high now for a smoothly sustainable industry. But the time for the system to reach equilibrium, once the price is established, is much longer than it takes for the system to make a price change. Therefore demand is forever trying to match the price level, as is supply, but the price changes too rapidly for either to catch up. Distressing but true.
Turning to shale oil, Mike Shellman has spoken for years about the underlying problem of the shale industry. He astutely points out the disconnect between the industry's willingness to borrow and drill, concomitant with no thought of the consequences of their combined output, allowing the industry to suffer the consequences of desperation marketing. So the roller coaster price/production profile will likely continue. Binge and purge it shall be!
William EdwardsMike ShellmanOn 5/14/2018 at 7:42 PM, Tom Kirkman said: Related to your question, here is a link to Art Berman's recent presentation.
While I don't expect others to agree with Art's conclusions (he is directly flying in the face of mainstream opinion), his presentation raises numerous points that are worth mulling over and at least considering .
The pdf is 15 MB:
Thanks, Tom. I went through Art's presentation, rather quickly I must admit, and I find agreement with most of his presentation. He was over my head on some of it so my comments exclude that info.
I should emphasize my strong agreement with his assessment regarding the swing producer. His views match mine and we both can vigorously defend the validity of that assessment. The US reserves are much too small for us to ever be considered in the swing producer role. On an instantaneous basis we can force pricing actions that are basically unsound for the industry, but we cannot sustain the supply impact that would be necessary to play that game very long.
His presentation is well worth the time required to understand his points.
Thank you once again, William. I have a long standing "debate" with an analyst who is very into modeling shale oil growth. His driving factor is price. Our arguments stem around the fact that the US shale oil phenomena is based entirely on the availability of low interest capital and has little to do with product price. We more or less already have proof of that, yes? A portion of the total HZ rig count in America is controlled by loan covenants and lenders; a much smaller portion driven by "free" cash flow due to higher prices. If the price falls, rather when it falls, we'll see less growth but there will still be growth; really its the FED that's has control of the US LTO industry, not OPEC.
Having said that, I do believe OPEC, Russia and Non-OPEC producers know exactly how shale oil growth is funded in America, what it costs, how unprofitable it is, and understand rising GOR, decline and depletion very well. They are not stupid about oil and gas production, in spite of what folks might think in Midland. There is a price level that is good for the US shale oil industry (this may be it!) that will drive it plum off the cliff in 3-5 years and that is precisely the plan. We're always in a big damn hurry in America...in this case to deplete our remaining hydrocarbon resources. The buzzards are circling.
A last word about Art's presentation in Dallas; he has been getting hammered for his comments by the shale industry and by the MSM because most, in their rush to attack the messenger, did not even read the message. The PDP, PUD reserves he quoted that might leave the Permian HZ play with only about 7-8 more years of life were proven reserves estimated by shale oil companies themselves and reported to the SEC. He did not make that data up; they did.
Why do folks hate Art Berman's message so much?
Eric, with respect to my friend, Art Berman, and Yahoo finance, the possibility that 27% of shale oil companies in America made money in 2017 is a stretch to me. In my opinion, there was a lot of non-GAPP, funky accounting that created this illusion based on asset sales and enormous, one time tax charges. We have to rely on SEC data, of course, but personally I don't think anybody made money in 2017, in spite of lower costs, higher productivity, and production cuts from OPEC. More importantly, at least to me, they did not make enough money to put a dent in debt (Devon reduced debt, EOG added debt).
The shale oil industry, even the mighty Permian, is sustainable only as long as the money holds out. Or until they saturate core, sweet spots and have to start drilling the really lousy rock, then things will go from bad to worse. In the mean time the shale industry is facing some hefty debt maturities coming up in a few years, with interest rates going up.
Here is a statistic that will knock your socks off, about 75% of all unconventional HZ wells drilled in the Permian, since the beginning, now make less than 40 BOPD (IHS, shaleprofile.com); the answer to your question might lie there.
But pat yourself on the back; you are on the right track. Question everything. Dig out the facts. Do your own math. This might be interesting to you also: https://www.scribd.com/document/370742449/Shale-Reality-Check-Drilling-into-The-U-S-Government-s-Rosy-Projections-for-Shale-Gas-Tight-Oil-Production-Through-2050#fullscreen&from_embed
May 14, 2018 | www.zerohedge.com
Authored by Tsvetana Paraskova via OilPrice.com,
Geologist Arthur Berman, who has been skeptical about the shale boom, warned on Thursday that the Permian's best years are gone and that the most productive U.S. shale play has just seven years of proven oil reserves left.
"The best years are behind us," Bloomberg quoted Berman as saying at the Texas Energy Council's annual gathering in Dallas.
The Eagle Ford is not looking good, either, according to Berman, who is now working as an industry consultant, and whose pessimistic outlook is based on analyses of data about reserves and production from more than a dozen prominent U.S. shale companies.
"The growth is done," he said at the gathering.
Those who think that the U.S. shale production could add significant crude oil supply to the global market are in for a disappointment, according to Berman.
"The reserves are respectable but they ain't great and ain't going to save the world," Bloomberg quoted Berman as saying.
Yet, Berman has not sold the EOG Resources stock that he has inherited from his father "because they're a pretty good company."
The short-term drilling productivity outlook by the EIA estimates that the Permian's oil production hit 3.110 million bpd in April, and will rise by 73,000 bpd to 3.183 million bpd in May.
Earlier this week, the EIA raised its forecast for total U.S. production this year and next. In the latest Short-Term Energy Outlook (STEO), the EIA said that it expects U.S. crude oil production to average 10.7 million bpd in 2018, up from 9.4 million bpd in 2017, and to average 11.9 million bpd in 2019, which is 400,000 bpd higher than forecast in the April STEO. In the current outlook, the EIA forecasts U.S. crude oil production will end 2019 at more than 12 million bpd.
Yet, production is starting to outpace takeaway capacity in the Permian, creating bottlenecks that could slow down the growth pace.
Drillers may soon start to test the Permian region's geological limits, Wood Mackenzie has warned. And if E&P companies can't overcome the geological constraints with tech breakthroughs, WoodMac has warned that Permian production could peak in 2021 , putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices.
The takeaway bottlenecks have hit WTI crude oil priced in Midland, Texas, which declined sharply compared with Brent in April, the EIA said in the May STEO.
" As production grows beyond the capacity of existing pipeline infrastructure, producers must use more expensive forms of transportation, including rail and trucks. As a result, WTI Midland price spreads widened to the largest discount to Brent since 2014. The WTI Midland differential to Brent settled at -$17.69/b on May 3, which represents a widening of $9.76/b since April 2," the EIA said.
May 13, 2018 | www.unz.com
renfro , May 12, 2018 at 6:05 am GMTSeveral years ago Putin made a speech at the UN in favor of upholding International Law I thought at the time this "diplomatic statesmanship" was going to be Putin's way of bring Russia back into equal power with the Europeans and the US. Some have wondered and been asking about Putin not being as aggressive as he could be in defending Syria and Iran. Putin's holding off on tough talk/action could be amassing more power in the end. Putin comes off as the voice of sanity..exactly what the Europeans want to hear and see.
As Europe turns away from the US they turn to Putin.
If anyone remembers all the Jew rags making fun of "old Europe" during the Iraq war run up and urging that the US break with them as outdated relics no longer needed in the new modern age -- this is what it was all about -- separating the US from its traditional allies who were not as subservient to Israel as the US. So .now we are down to the Jew plan Europe and sanity vr the US Orange Clown and his allies of midget Nazi Israel, Saudi and the UAE.
Germany begs Russia to pick up the torch that US has dropped
"Germany's Foreign Minister, Heiko Maas, who has a history of expressing anti Russian rhetoric relevant to Russia's presence in Syria as well as an alleged cyber attack on the German Foreign Ministry which Maas says that he 'has to assume stemmed from Russia', has turned an about face. He has traveled, for the first time, to Moscow to discuss international diplomacy, the Iran nuclear deal, peace talks on Ukraine, and Syria.
Maas met with his Russian counterpart, Sergei Lavrov, where he encouraged Russia to leverage its influence with Iran to help spur the Middle Eastern state in remaining committed to the nuclear deal, which Trump abandoned earlier in the week.
Germany's Foreign Minister, Heiko Maas, who has a history of expressing anti Russian rhetoric relevant to Russia's presence in Syria as well as an alleged cyber attack on the German Foreign Ministry which Maas says that he 'has to assume stemmed from Russia', has turned an about face. He has traveled, for the first time, to Moscow to discuss international diplomacy, the Iran nuclear deal, peace talks on Ukraine, and Syria.
Maas met with his Russian counterpart, Sergei Lavrov, where he encouraged Russia to leverage its influence with Iran to help spur the Middle Eastern state in remaining committed to the nuclear deal, which Trump abandoned earlier in the week.
Maas then declared that Germany was interested in bringing back the peace talks on the Ukraine, together with other European partners. Maas also pointed out that the Syrian conflict can't be settled without Russia, before contributing a wreath to the tomb of the unknown soldier, which is a dedication to Russian soliders who died fighting the Germans in WW2.
Deutsche Welle reports:
Germany's top diplomat Heiko Maas and his Russian counterpart Sergey Lavrov both called for the nuclear deal with Iran to be upheld on Thursday, during Maas' first official visit to Russia. The appeal marks a rare moment of unity between Moscow and Berlin just days after US walked out on the 2015 accord.
In Moscow, Maas urged Russia to influence Tehran and make it stick to the deal, which aims to limit Iran's alleged pursuit of nuclear weapons. The German foreign minister also said he was seeking details from the US on its plans for future sanctions against Iran
US President Donald Trump has shrugged off pressure from allies to keep the deal in place and called the accord "defective at its core." However, leaders of the UK, France, and Germany all contacted Iranian President Hasan Rouhani in the attempt to salvage the accord.
Germany's Chancellor Angela Merkel called Rouhani on Thursday to reaffirm Germany's commitment to the deal "as long as Iran continues to fulfil its obligations," said Merkel's spokesman Steffen Seibert. Merkel also said she was ready to negotiate about Iran's ballistic missiles and involvement in Syria and Yemen.
Angela Merkel is also set to visit Russia next week.
Visiting Moscow on Thursday, Germany's top diplomat Maas suggested reviving the peace talks between Germany, France, Ukraine and Russia on the conflict in eastern Ukraine. Lavrov responded by saying Russia was "ready to consider" this offer.
Maas also called for "honest dialogue" with Moscow and for Russia to be included in global diplomacy, despite its differences with Berlin. Maas admitted that the conflict in Syria "cannot be solved without Russia."
The German diplomat also laid a wreath at the Tomb of the Unknown Soldier in Moscow, which is dedicated to the Soviet soldiers killed during World War II.
Also in a bid to get Russia to assume a leadership position relative to preserving the nuclear deal, and by extension, the European economy, Merkel got on the phone with Russian President Vladimir Putin, where he mutually voiced his concern over Trump's action, and where Merkel also came forward about the situation in Syria.
BERLIN, May 11. /TASS/. Federal Minister for Economic Affairs and Energy Peter Altmaier has confirmed that he will visit Moscow at the beginning of the next week, he said in an interview with German radio station Deutschlandfunk released on Friday.
"I will follow my colleague [German Foreign Minister Heiko] Maas, who attended negotiations in Moscow yesterday. I will be there on Monday and Tuesday, and Chancellor [Angela Merkel will visit Sochi -- TASS] during the week," Altmaier said.
May 03, 2018 | oilprice.com
Some analysts do expect oil to reach $80 in the coming months.
Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, told Bloomberg Daybreak: Americas that he sees oil hitting that level in this quarter, due to some bottlenecks emerging in the Permian that could slow down the growth pace.
Goldman Sachs, for its part, sees oil prices at $80 by the fourth quarter of this year due to expectations that global oil demand growth will stay high this year, and that China's demand growth may be even higher than currently estimated.
Apr 18, 2018 | community.oilprice.com
Report post " What exactly do we get from Russian that we couldn't do without? " <== The willingness to ally with the U.S. vs the Chinese.
There is no denial of what Russia has done in the last few years, and it's wrong! However, what is entirely missing from the western media is the U.S. ambassador to the USSR, Jack Matlock, and George Kennan have been warning the American political elites since the 90's, prior to Putin was even known and in politics, that the American foreign policy is steering us straight into confrontations with Russia! It's not if but when it will happen REGARDLESS OF who is in Kremlin! Nobody cared to heed because we were indulging ourselves as the sole superpower in the world.
Neither has the American media reported even our old friend, Gorbachev, is praising Putin and has harsh words for the U.S. In a nutshell, the Russians don't like to be treated as a nobody country, ie. with decisions of world affairs already made and shoved at their face, and they can either put up or shut up! However, that is exactly how Washington has conducted business with Russia until the crisis in Ukraine in 2014. Would the American public put up with a revolution led by a Russian politician in Mexico City or Ottawa, even though it's Mexican or Canadians self-determination? Then what makes us think the Russians would tolerate John McCain leading an anti-Russian revolution in Kiev, even if it's Ukrainian self-determination? Don't forget the U.S. directly invaded Grenada when they were exercising their self-determination to ally with the USSR!
This is not about defending Russia. The Russians can take care of that themselves. Rather, can the U.S. afford to have Russia and China solidify their alliance again? It's already happening unless we can adopt a sensible Russian policy to turn it around. Who would you rather ally with? Someone (like the U.S.) who expects you to be a subordinate vs another (like China) who is willing to treat you as an equal?
One can certainly argue how it is possible to ally with a country like Russia, who sponsors dictators, meddles in our elections and tramples on other nation's self-determination. If you are willing to be honest with yourself, just Google it. There is not one thing we accuse of the Russians that our politicians are not doing it overseas, by MULTIPLE magnitude! The biggest gripe the Russians have toward the U.S. is "are you preaching democracy or hypocrisy?" Yes, one sin doesn't justify another, but why our politicians can't uphold this principle when they are committing treacheries overseas?
Apr 13, 2018 | www.presstv.com
Syrian state TV said that the attack hit the country's army depots in the area of Homs, Reuters reported.
A Reuters witness said that at least six loud explosions were heard in Damascus with smoke rising over the Syrian capital where a second witness said the Barzah district, the location of a major Syrian scientific research center, was also hit in the strikes.
Meanwhile, Syrian state television reported that "Syrian air defense blocks American, British, French aggression on Syria." It added that 13 missiles were shot down.
The US has been threatening Damascus with military action since April 7, when a suspected chemical attack on the Syrian town of Douma, Eastern Ghouta, reportedly killed 60 people and injured hundreds more. The Syrian government has already strongly denied using chemical munitions in the flashpoint town.
Joe ,People think this is about Syria, it is not. It's about oil price. Watch on Monday and the days following oil price will rocket up, and Iran, Russia, US will all be celebrating privately. The Chinese stock market will fall because oil will cost them more.
Mar 29, 2018 | www.ft.com
Martin Wolf : How China can avoid a trade war with the US
... the plan to impose 25 per cent tariffs on $60bn of (as yet, unspecified) Chinese exports to the US shows the aggression of Mr Trump's trade agenda. The proposed tariffs are just one of several actions aimed at China's technology-related policies. These include a case against China at the World Trade Organization and a plan to impose new restrictions on its investments in US technology companies.
The objectives of these US actions are unclear. Is it merely to halt alleged misbehaviour, such as forced transfers -- or outright theft -- of intellectual property? Or, as the labelling of China as a "strategic competitor" suggests, is it to halt China's technological progress altogether -- an aim that is unachievable and certainly non-negotiable. Mr Trump also emphasised the need for China to slash its US bilateral trade surplus by $100bn. Indeed, his rhetoric implies that trade should balance with each partner. This aim is, once again, neither achievable nor negotiable.
...A still more pessimistic view is that trade discussions will break down in a cycle of retaliation, perhaps as part of broader hostilities.
Mar 09, 2018 | www.nakedcapitalism.com
Yves here. The US seems overeager to be exceptional.
By Gary North, Oilprice.com's South-East Asia & Pacific correspondent. He writes about energy matters, geopolitics and international financial markets. Originally published at OilPrice
U.S. shale has effectively upended the oil industry, with predictions that total U.S. oil production will surpass Saudi Arabia's output this year, in turn rivalling Russia's to become the preeminent global producer. From its position of being dependent on, and subordinate to OPEC, the U.S. has seemingly become the big bad wolf. Through a catalogue of tactical errors and misplaced belief in its own muscle, the mighty brick edifice of OPEC has begun to look more like a bundle of sticks.
The International Energy Agency (IEA) forecasts that the U.S. will become a net energy exporter by the late 2020s, but how accurate is that forecast, and to what extent is it mere hyperbole? In October last year there were already caveats about the nature of U.S. shale, with some warning that aggressive expansion was leading to rapid initial growth that would ultimately peak too soon. Mark Papa, former head of EOG Resources (NYSE: EOG) raised the question of flatlining output in the face of the doubling of the oil rig count, "(h)ow can a rig count be double and yet production be stagnant?"
Figures have also been influenced by the rapid pace of technological development, a pace which has itself plateaued. Robert Clarke, WoodMac research director for Lower 48 upstream, said that "(i)f future wells are not offset by continued technology evolution, the Permian may peak in 2021". IEA forecasts then, may be based on rapid growth and technological development that simply isn't sustainable. Related: Shell Outsmarts Competition In The Gulf Of Mexico
Is U.S. shale just a sheep in wolf's clothing, its bite ultimately as benign as grandma's? The IEA is still forecasting that the U.S. will be the number one oil exporter by 2023 at 12.1 million bpd, but at the CERAWeek Conference in Houston on Tuesday, Papa is set to turn that thinking on its head when he warns the industry that shale will hit roadblocks that prevent such forecasts from being realized. He says the best drilling locations in North Dakota and South Texas are already tapped out. "The oil market is in a state of misdirection now," Papa told the WSJ. "Someone needs to speak out."
How much of this is indeed misdirection on his part? Papa is CEO at Centennial Resource Development (NASDAQ: CDEV), which holds the rights to 77,000 acres in the oil-rich Delaware sub-basin of the Permian. A slowdown in expansion and its potential consequence of increased oil prices is advantageous to Centennial's shareholders, so who are we to believe guilty of misdirection?
A more conservative rate of growth may simply be desired by some, but it also may be an inevitability. Kevin Holt, chief investment officer of Invesco's U.S. value equities has said that the situation many companies find themselves in is in part a consequence of the link between their leaders' pay and production growth, rather than returns on investment. This has fostered a drilling frenzy that has resulted in an explosion of production – an unregulated drilling frenzy that may be at odds with the long term survival of those companies. Investors have subsequently demanded a more conservative approach to drilling, which appears to be having a stabilizing effect.
Ultimately the market is subject to myriad pressures, such as the heterogeneous quality of oil, fluctuations in labor costs and oil prices, as well as changes in the pace of technological development. These pressures shape the nature of the market, and also make it difficult to predict the longevity of tight oil reserves, and the ability of companies to exploit them. Another significant factor is regulation. How long will Trump's EPA remain the castrated shadow of its former self, and how long until it begins to bare its own teeth?
Is Papa's anticipated warning about to shake up the industry? Or is it merely the continuation of the chorus of restraint that many in the industry have been voicing in this period of massive growth and upheaval? Ultimately the industry will decide whether it will be eating out of Papa's hand, or persist in biting the hand that feeds it.
Expat , March 7, 2018 at 7:58 amMax4241 , March 7, 2018 at 9:21 pm
The US might produce 11 million bpd of oil and condensates, but it still consumes nearly 20 million bpd. So, while the US might become a large exporter, it will be a large net importer. I don't see how shale or fantasy oil fields offshore Florida or in the ANWR will add 21 million bdp of production which would allow the US to be a net 12 million exporter. And by 2023? This must have been a typo.
In any case, without a major transition away from internal combustion engines and heating oil, the US will not be a net export any time soon.
As for shale, while the technology is improving, the rig counts show the true story. US production is not expanding in line with rigs, nowhere near it. Shale is not Ghawar and never will be.The Rev Kev , March 7, 2018 at 8:17 am
"The US might produce 11 million bpd of oil and condensates, but it still consumes nearly 20 million bpd." Exactly. The US is going to be a net exporter .and a net importer . of the same thing. And people accept this. We are leaving the Orwellian Age behind, and entering the Age of Insanity.PlutoniumKun , March 7, 2018 at 9:12 am
I'm probably going to get smacked down on this but all the oil that the US is pushing out comes from those shale formations, don't they? But they are not like oil wells which you can keep pumping for decades but are more about sucking all the loose stuff that you can out of geological formations. And they deplete – rapidly!
Has anybody worked out how many years it will be until those particular shale formations have been sucked dry? The article mentioned that some formations had already been run dry. This somehow smacks to me of trying to keep the age of cheap oil going a little bit longer.Scott , March 7, 2018 at 12:13 pm
Yes, most of the increase in oil comes from oil shale. Unlike a conventional oil well, shale extraction means a constant process of fracking (driving a hydraulic fluid into the geology to release light oil and gas trapped in the rock pores), so its much harder to assess the long term viability of a reserve than with a conventional well, which is usually an oil filled underground void with a measurable capacity. The typical production life of a single 'frack' is around 9 months or so, although a single well can be fracked multiple times if the geology is right.
If you google the geologist Arthur Berman, you'll find many of his articles on the topic. He's long been something of a fly in the ointment for the trade, as he has argued that extrapolations based on early explorations are likely to be too optimistic, as the industry is aiming for 'sweet spots', which will provide very good flows, but not a good indication of longer term potential. He has also pointed out (which is not denied in the industry), that unless new technologies are developed, the 'drop off' from peak production will be a much sharper decline than from a conventional oil field, as there will come a point where repeated fracking is not economically viable.
So nobody ultimately really knows – if you believe the industry, better and cheaper techniques will allow fracking to extend outwards from known sweet spots to extend over the truly vast expanse of oil and gas shales that run from Texas up to Pennsylvania and New York state. The pessimists (who tend to include most oil geologists) say that the extractable oil is already getting worked, and the point of unviability will come very quickly, and there will be a very rapid drop-off. Only time will tell.
Another point worth making is that oil is not as fungible a product as is often assumed. Shale oil is known as 'tight oil – its very light, but there are only very limited numbers of refineries that can deal with it. This is why it goes hand in hand with the use of heavier grades to mix in, so it can be refined in existing facilities which are designed usually for Gulf of Mexico or Alaskan crudes. This oil is mostly Venezuelan heavy crude or Canadian oil sands product. So there is a sort of dance going on between these products to ensure tight oils viability. Its notable that so far as I've seen, nobody seems willing to invest in tight oil refineries, which to me suggests the industry is not optimistic about its long term potential.Synoia , March 7, 2018 at 1:00 pm
Three years ago, a new refinery opened in North Dakota. A year later it sold for a loss http://www.thedickinsonpress.com/business/energy-and-mining/4063779-dakota-prairie-refinery-sold-tesoro-loss-hurt-oil-price-slump
The primary reason was the collapse of oil prices and the associated decreased demand for diesel.Amfortas the Hippie , March 7, 2018 at 7:07 pm
Another point worth making is that oil is not as fungible a product as is often assumed
Very true. Refineries have to be "tuned" for a specif type of oil. Most refineries can only process oil from a single origin, and change of origin requires expensive, slow changes, made reluctantly.
Why reluctant to change? Construction in refineries is dangerous.rjs , March 7, 2018 at 9:29 am
Yup. Fracking means scraping the dregs out of spent fields. Permian Basin(which I've seen touted as the "new saudi arabia", lately) peaked in like 72 or 73. all over that part of texas are rusty pumpjacks, idle until the oil price gets rather high(Bush Darkness, they started running again) These are marginal wells, at best, without extraordinary measures(like fracking what they used to call bottle-brushing*).
Oil is finite which means that at some point it will no longer be worth it to get it out of the ground(EROEI). Ergo, these big plays that will "make us energy independent" are flashes in the pan.
(* my dad used to fish with a guy who did bottle brushing for saudi aramco, circa late 80's, apparently a rare skill at the time. he said back then that they were gonna run out, because you don't do that to healthy(sic) fields. )Anand shah , March 7, 2018 at 11:27 am
looking at the actual numbers involved might help
natural gas imports, mostly from Canada: https://www.eia.gov/dnav/ng/hist/n9100us2m.htm
natural gas exports, still mostly to Mexico: https://www.eia.gov/dnav/ng/hist/n9130us2m.htm
oil imports: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRIMUS2&f=W
oil exports: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCREXUS2&f=WChauncey Gardiner , March 7, 2018 at 7:12 pm
https://peakprosperity.com has been behind shale oil production issues for the last decade and has published blogs / podcasts, interviewed experts, etc
Some articles are behind a paywall, but it is a very good sourceJohn k , March 7, 2018 at 11:59 am
Ditto Genscape.com regarding overall supply-demand factors. Not a subscriber nor do I regularly follow sector developments, but big inventory drawdowns at Cushing, OK terminal over the past four months are puzzling in the face of rising EIA oil production data. Exports?
Read that OPEC representatives are meeting with US in Houston this week.RBHoughton , March 7, 2018 at 8:38 pm
Slow us expansion and the next recession, which might rival the last one because private sector debt, will push price sub 40.
But majors have cut back exploration for some time, OPEC and Russia maybe in decline, and conversion to electrical cars minimal I'm guessing new price record in five years.
The weird thing about shale is it unites the power of the financial lobby who finance the drilling with the power of the oil barons who control the market – that gives it 'umph' in the capitalist world.
My particular fear for America is that the entire country except the east and west coasts are approved for fracking. An important part of national food production comes from states like Kansas which use aquifer water entirely. If the farmers pump oil-flavored water on their fields it will have an effect on the harvests. In profiting one way, the country sustains a loss in another.
Feb 23, 2018 | oilprice.com
What Is The Right Price For Oil In A Balanced Market? By Dan Steffens - Feb 21, 2018, 6:00 PM CST The price of oil is well off the low for this cycle because the OPEC + Russia plan to rebalance supply & demand has worked. Now the question is "What is the Right Price for oil in a balanced market?"
(Click to enlarge)
The price of West Texas Intermediate (WTI) crude oil, like the stock market, was overdue for a bit of a pullback or "correction". After peaking at over $66/bbl on January 26, 2018 the front month NYMEX contract for WTI followed the stock market correction down to just above $59/bbl on February 13. By the close on February 16 it had rebounded back to $61.55/bbl. The fact that a key resistance level at $57.65 was not tested during the selloff is encouraging.
WTI has been moving in a strong upward channel since last summer. Right now there is strong support at $57.65 and strong resistance at $66.70. A close above $67.00 should set up a test of $75.00 sometime in the 3rd quarter. At least that's what the "tea leaves" are telling me.
In my opinion, there are several "myths" or "false paradigms" that are holding down the price of oil.
Myth #1: U.S. Tight Oil production can meet the world's future demand for oil.
U.S. oil production is on the rise. There is no doubt that vast improvements in horizontal drilling technology and completion methods have made harvesting oil from shale and other tight zones possible. U.S. oil production now exceeds 10,000,000 barrels per day; a level no one in the industry believed was possible at the turn of the century. However, U.S. tight oil production is still only 5% of the global oil supply. It is highly unlikely that U.S. oil production will be able to ever meet U.S. demand (currently over 17,000,000 barrels per day), much less supply the rest of the world.
Myth #2: All Shale Leasehold is the same.
The Permian Basin covers 19 million acres, however only a small percentage of the leasehold is considered "Tier One" for shale oil recovery. Upstream companies are rapidly drilling up their best acreage, a process called "High Grading". Once they have drilled out the Tier One locations, it will be extremely difficult to maintain the pace of production growth that we have seen recently.
Adding to the problem is the fact that horizontal wells are completed with massive frac jobs, which enable the wells to have very strong initial production rates. Initial production ("IP") rates are unsustainable. After the initial surge, production declines rapidly in all horizontal wells. In most areas, production declines by more than 50% from the IP rate within a year. After three years, most horizontal shale wells are producing less than 10% of their "IP Rate". Related: The U.S. Oil Industry Sets Its Sights On Asia
From a well-level economic standpoint this is great since the wells payout quickly. However, we now have 100s of thousands of high decline rate horizontal wells online and another 20,000 new shale wells will be completed this year. Soon after the Tier One areas are developed, it will be mathematically impossible to drill enough Tier Two wells to maintain production growth. Most people that I talk to think the Bakken Shale and the Eagle Ford Shale have already seen their peak production. Myth #3: All oil is the same.
This is really more of a common misunderstanding than a myth. The oil being extracted from shale and other tight formations has very high API gravity (over 40 degrees). To a point this was good news, but now we are producing so much "Light Oil" that our refineries cannot handle all of it. This is one reason that the U.S. is now exporting more oil and why Brent oil trades at about a $4.00/bbl premium to WTI. Per the most recent U.S. Energy Information Administration's ("EIA") weekly report, over the last six weeks ending February 9, 2018 the U.S.:
• Produced 9,926,800 barrels of crude oil per day
• Imported 7,976,500 barrels of crude oil per day (mostly heavy oil)
• Exported 1,341,500 barrels of crude oil per day (all light oil)
• Exported 4,885,000 barrels of refined products per day
I am expecting the problem of too much light oil production to get more press coverage this summer because (a) it takes more crude oil to produce summer blend gasolines & diesel and (b) there is a limit to how much light oil we can export.
Myth #4: We no longer need conventional exploration.
You could argue that this is the same as Myth #1. The thinking among investors is why waste capital on exploration in remote areas or on high risk drilling like deep water prospects when shale can produce all the oil we will ever need? The truth is that Non-OPEC / Non-U.S. oil accounts for over 45% of this world's crude oil supply and it is now at risk of going on steady decline because so little capital has been deployed in these "Other Areas". With demand for oil now increasing by 1.5 to 2.0 million barrels per day year-after-year, we are going to need lots of new supply outside of the shales.
Myth #5: OPEC and Russia can flood the market with oil whenever they feel like it.
• First of all it would be incredibly stupid for the cartel members to over produce again since they were the ones that suffered the most during the recent oil price collapse.
• Second, OPEC may actually have very little production capacity beyond what they are producing today.
In the International Energy Agency's most recent " Oil Market Report " that was published on February 13, 2018 it was reported that OPEC members were 137% in compliance with their production agreement and the Russian lead Non-OPEC group was 85% in compliance with their agreement. In my opinion, the real reason that OPEC is holding down production is because they can't produce much more oil than they are producing today. Regardless of the reason, this one is a fear that should not keep investors up at night. Related: Frac Sand Shortage Threatens Shale Boom
If you're considering investing in the Saudi Aramco IPO later this year, you may want to think about the paragrap:above.
One of my friends with decades of oil & gas industry experience sent me this note: "I attended an energy conference in Houston last year and the speaker from Tudor Pickering Holt & Co. (a highly respected energy investment & banking firm) made this comment:"
"When oil was over $100/bbl, did any new production come on in OPEC or Russia? The only area that saw a significant increase in oil production was North America. No other geologic province increased production. That tells you that if it were there, it would have been brought on to produce during a period of $100 + oil. It is the belief of TPH that any production outside of North America and big offshore projects requiring years to develop do not exist".
I'm sure there are many industry experts that believe there are massive recoverable oil reserves out there, but TPH's comment does give one pause.
Myth #6: Electric Vehicles and Renewables will soon slow oil consumption.
There is no evidence that this is going to happen anytime soon. The "Millennials", defined as persons reaching adulthood in the early 21st century, have been brainwashed to believe we'd be better off without hydrocarbon based fuels and feedstock. Nothing could be further from the truth, but that is a subject for another time. Millennials believe that all educated people will be driving electric cars within a few years. They never pause to think about where all the rechargeable battery materials will come from or the massive changes that will be required to the power grid.
If you are over 30, you may recall that biofuels were going to cause oil demand to go down. It never happened.
We are going to see more electric vehicles in the future, but they won't make a dent in gasoline and diesel demand for at least another decade. Wind and solar generate electricity and therefore are more of a threat to coal, but they still cannot compete with gas fired power plants.
Like it or not, this world runs on oil. Nothing can come close to the energy density of gasoline & diesel and they are still relatively cheap compare to other transportation fuels.
(Click to enlarge)
Fact: In April, demand for crude oil is expect to spike by over 2.0 million barrels per day.
In 2017, demand for oil increased by 2.3 million barrels per day from the first to the second quarter. Last year, U.S. crude oil inventories were at the top of the five year range. Today, U.S. crude oil inventories are in the middle of the five year range. Facts eventually top Myths.
Some statistics in the IEA's Oil Market Report that should have raised a few more eyebrows:
• Global oil supply in January edged lower to 97,700,000 barrels per day. Compare this to global demand that IEA forecasts will exceed 100,000,000 barrels per day by the 4th quarter.
• IEA's oil demand growth forecast for 2018 was raised to 1,400,000 barrels per day. In my opinion, when the actual data is in for 2018, demand will have gone up by over 2,000,000 barrels per day. Global GDP growth estimates just keep going up and GDP growth is the primary driver of oil demand.
• OECD commercial stocks (crude oil and refined products) fell in December by 55,600,000 barrels, the steepest drop in over seven years. OECD stocks are now 2,851 million barrels, which is way below "glut" level.
My prediction: When the U.S. refinery maintenance season is over in March, supply/demand statistics are going to turn VERY BULLISH for oil in April.
By Dan Steffens for Oilprice.com
- Mamdouh G Salameh on February 22 2018 said: While I agree with you on myths surrounding US shale oil production, I disagree that OPEC can't produce more given the right oil price. Iraq alone could add more than 2 million barrels a day (mbd) by 2021/22 given the ongoing development of many discovered oilfields. Iraq has a large number of huge discovered oilfields that are waiting to be developed. A successful development programme could take Iraq's oil production to more than 10 mbd by 2026/27.
Moreover, OPEC could easily raise their production by more than 2.5 mbd at an oil price of $100/barrel or higher. But having suffered a real ordeal with the oil price crash in 2014, they are not going to flood the oil market again.
I totally agree with you that there is a huge hype about the impact of a wider use of electric vehicles (EVs) on the global oil market and the demand for oil. EVs will hardly make a dent on the global demand for oil. There will never be a post-oil era during the 21st century and far beyond.
The oil price is heading towards $70/barrel and beyond during 2018 and could even touch $80 in 2019 buoyed by very positive oil market fundamentals and a re-balanced oil market.
In my considered opinion, a fair price for oil ranges from $100-$130. Such a price will provide good revenues to the oil-producing nations and will enable them to invest in exploration and in expanding oil-production capacity. It will also enhance global investment in oil and energy projects and will enable major oil companies to balance their books and invest further in oil projects. All in all, it will stimulate the global economy and impact positively on it.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
- Pankaj Kumar on February 22 2018 said: What happens if India and China start booming? Their oil consumption and appetite increase beyond the projected estimate. This could mean oil prices reach the highest threshold they've ever seen. This is important with many countries (USA) now becoming more territorial and protection driven. $100-130 would be conservative numbers if this happens.
Feb 23, 2018 | peakoilbarrel.com
Mike x Ignored says: 02/21/2018 at 4:56 pmThe increase in well productivity comes with a higher cost tag and whether it is 225 or 250K BO EUR, at a gross WH price of $60 per barrel and a net back price of $30, those kinds of estimated UR's are barely (in)sufficient to pay out $7.5M well costs. One cannot replace reserve inventories that are declining precipitously, much less grow reserves, by breaking even. It is, in my opinion, a mistake to assume the future of unconventional shale oil resources in our country is strictly price dependent. It is very much money dependent.shallow sand x Ignored says: 02/21/2018 at 7:55 pm
I think one of the primary reasons there are any rigs still running in the EF is to comply with SEC, 5 year, drill-it-or-lose-it rules for proximity related PUD reserves. If you have borrowed money on PUD reserves and are about ready to have to impair, again, because you are running out of time, you are up Shit Creek. Or further up Shit Creek than you already were. Otherwise, I don't know why anyone is drilling Eagle Ford wells anymore unless they know, guaranteed, the price of oil is going to $85 and will STAY there.Just thinking about all these stripper horizontal wells gives me LOE nightmares.Mike x Ignored says: 02/21/2018 at 8:14 pm
A major expense being downhole failures, doesn't it make practical sense that these wells will be very high cost? Over 10,000' of rods rubbing up and down against 10,000' of tubing, and in particular in beginning of the "curve" where the down hole pump apparently must sit in order to keep from pumping off.
We have wells that haven't been pulled in years, but those are slow pumping verticals that are very shallow. Many drilled with a cable tool. Straight holes, little rod wear.
I just cannot imagine getting a long run without a failure on these hz wells with a 640 Lufkin pounding away 24/7/365.I drove by 33 Eagle Ford shale oil wells today, Shallow; did a little windshield poll. Twenty one of them were down. Or on pump-off controls. Either way, they weren't making money. Might be they were all WOR; everybody has fled S. Texas for points West. Hauling frac sand can now make you upper middle class in less than 6 months.Eulenspiegel x Ignored says: 02/22/2018 at 4:38 am
Rod lifting those kinds of wells you describe been there, done that. It sucks. Steal one in a garage sale, or off eBay and for a while you think you hit a big lick. Then along comes a $135K well intervention that takes 2 years to payout and you wish you'd become a landscape engineer (lawnmower) instead.So it looks like shale oil is all about getting as much as you can in the first 3 years – the rest is pure luck before equipment breaks down?shallow sand x Ignored says: 02/22/2018 at 6:35 amAll wells on rod lift eventually will have down hole failures. When wells fail often, or are low oil volume, they may become uneconomic to produce.
From what I have seen from actual joint interest statements to non-operated working interest owners, it costs between $3,000-$20,000 per month to operate a shale oil well. Much of the expense depends upon how much water is produced with the oil. Almost all produced water is truck hauled. Water disposal systems are being constructed, but those are very expensive.
The $$ figure I cite does not include repairs of down hole failures such as pump failures or tubing leaks. About the cheapest downhole repair I have seen for one of these wells was $15,000. The highest I have seen was almost $500,000.
EUR estimates for these wells are for a 40-50 year well life. Much of that life the well will produce under 25 BOPD. Most of the wells in TX are burdened with a 1/4 royalty.
So, just for illustrative purposes, let's say a 5 year old EFS in TX is now producing 6,000 net BO to the working interest owners. At $50 WTI it is providing gross income of $300,000. By the time we subtract LOE, G & A, and severance taxes, there is likely less than $100,000 left.
Then, realize many shale companies, to raise money, have sold their gathering systems, something which kind of astonished me at first. Therefore, the working interest owners are also paying to use those systems. Even less $$ to the bottom line.
So, as Mike says, it just becomes a gamble on how many down hole failures occur. If you luck out and have none in the year, you might make a little at $50 oil, more than one per year and you have likely lost $$.
There will be several hundred thousand of these wells onshore US before it is over. Each with a plugging and abandonment cost of around $250K estimated.
But, at $100+ oil, these might work. Just a big risk.
Feb 23, 2018 | peakoilbarrel.com
Hightrekkerx Ignored says: 02/22/2018 at 3:32 pmWell, they are academics, so we can discount this a bit:
U.S. Vastly Overstates Oil Output Forecasts, MIT Study Suggests
Feb 20, 2018 | www.moonofalabama.org
Palloy | Feb 20, 2018 8:52:02 PM | 34
@4 "For the life of me I cannot figure why Americans want a war/conflict with Russia."
Ever since US Crude Oil peaked its production in 1970, the US has known that at some point the oil majors would have their profitability damaged, "assets" downgraded, and borrowing capacity destroyed. At this point their shares would become worthless and they would become bankrupt. The contagion from this would spread to transport businesses, plastics manufacture, herbicides and pesticide production and a total collapse of Industrial Civilisation.
In anticipation of increasing Crude Oil imports, Nixon stopped the convertibility of Dollars into Gold, thus making the Dollar entirely fiat, allowing them to print as much of the currency as they needed.
They also began a system of obscuring oil production data, involving the DoE's EIA and the OECD's IEA, by inventing an ever-increasing category of Undiscovered Oilfields in their predictions, and combining Crude Oil and Condensate (from gas fields) into one category (C+C) as if they were the same thing. As well the support of the ethanol-from-corn industry began, even though it was uneconomic. The Global Warming problem had to be debunked, despite its sound scientific basis. Energy-intensive manufacturing work was off-shored to cheap labour+energy countries, and Just-in-Time delivery systems were honed.
In 2004 the price of Crude Oil rose from $28 /barrel up to $143 /b in mid-2008. This demonstrated that there is a limit to how much business can pay for oil (around $100 /b). Fracking became marginally economic at these prices, but the frackers never made a profit as over-production meant prices fell to about $60 /b. The Government encourages this destructive industry despite the fact it doesn't make any money, because the alternative is the end of Industrial Civilisation.
Eventually though, there must come a time when there is not enough oil to power all the cars and trucks, bulldozers, farm tractors, airplanes and ships, as well as manufacture all the wind turbines and solar panels and electric vehicles, as well as the upgraded transmission grid. At that point, the game will be up, and it will be time for WW3. So we need to line up some really big enemies, and develop lots of reasons to hate them.
Thus you see the demonisation of Russia, China, Iran and Venezuela for reasons that don't make sense from a normal perspective.
Feb 16, 2018 | consortiumnews.com
Mild-ly -Facetious , February 16, 2018 at 5:42 pm
F Y I :> Putin prefers Aramco to Trump's sword dance
Hardly 10 months after honoring the visiting US president, the Saudis are open to a Russian-Chinese consortium investing in the upcoming Aramco IPO
By M.K. BHADRAKUMAR
FEBRUARY 16, 2018
In the slideshow that is Middle Eastern politics, the series of still images seldom add up to make an enduring narrative. And the probability is high that when an indelible image appears, it might go unnoticed -- such as Russia and Saudi Arabia wrapping up huge energy deals on Wednesday underscoring a new narrative in regional and international security.
The ebb and flow of events in Syria -- Turkey's campaign in Afrin and its threat to administer an "Ottoman slap" to the United States, and the shooting down of an Israeli F-16 jet -- hogged the attention. But something of far greater importance was unfolding in Riyadh, as Saudi and Russian officials met to seal major deals marking a historic challenge to the US dominance in the Persian Gulf region.
The big news is the Russian offer to the Saudi authorities to invest directly in the upcoming Aramco initial public offering -- and the Saudis acknowledging the offer. Even bigger news, surely, is that Moscow is putting together a Russian-Chinese consortium of joint investment funds plus several major Russian banks to be part of the Aramco IPO.
Chinese state oil companies were interested in becoming cornerstone investors in the IPO, but the participation of a Russia-China joint investment fund takes matters to an entirely different realm. Clearly, the Chinese side is willing to hand over tens of billions of dollars.
Yet the Aramco IPO was a prime motive for US President Donald Trump to choose Saudi Arabia for his first foreign trip. The Saudi hosts extended the ultimate honor to Trump -- a ceremonial sword dance outside the Murabba Palace in Riyadh. Hardly 10 months later, they are open to a Russian-Chinese consortium investing in the Aramco IPO.
Riyadh plans to sell 5% of Saudi Aramco in what is billed as the largest IPO in world history. In the Saudi estimation, Aramco is worth US$2 trillion; a 5% stake sale could fetch as much as $100 billion. The IPO is a crucial segment of Vision 2030, Saudi Crown Prince Mohammad bin Salman's ambitious plan to diversify the kingdom's economy.
MORE : http://www.atimes.com/article/putin-prefers-aramco-trumps-sword-dance/
Feb 03, 2018 | oilprice.com
J.P. Morgan beat all other investment banks in their forecasts for the price of Brent crude this year, setting its projection at US$70 a barrel. To compare, the second most bullish forecast on Brent is from Bank of America at US$64 a barrel, while Goldman is even more cautious and has not yet upgraded its Brent price forecast from its US$62 a barrel prediction.
J.P. Morgan's reasoning is the same as the other banks': the global economy will continue to expand, which will stimulate growth in oil demand and healthy prices. This dynamic will also drive WTI prices higher, with the average for the year seen at US$65.63 a barrel by J.P. Morgan's oil analysts.
Despite the upbeat mood, the investment bank's analysts do recognize the danger of growing U.S. and other non-OPEC production. So, while their price forecasts are for the average level of Brent and WTI this year, the bank's senior oil analyst Abhishek Deshpande noted in an interview with CNBC that "This 2018 is going to be a year of two halves. The first half is going to be a ... half of demand, and the second half is more about supply, which is coming back in reaction to the higher oil prices." The first half of the year will be so strong, Deshpande believes, that Brent could hit US$78 a barrel in the first or the second quarter. Yet in the second half of the year, drillers will increase their production in response to the higher prices, and this higher production may weigh on the benchmarks.
There is also something else that may occur before too long: a price correction resulting from the record-high bullish positions on the six most popular oil-related futures contracts. In his latest column , Reuters' John Kemp warned that despite the already record number of long bets on these six contracts, money managers are continuing to place more, with the number of net long bets on Brent alone rising by an equivalent of 14 million barrels in the week to January 23. In total, net long bets on the six contracts swelled by 44 million barrels to 1.484 billion barrels. More Top Reads From Oilprice.com:
Mamdouh G Salameh on January 30 2018 said:
- Three Factors That Could End The Oil Rally
- Why Is The Shale Industry Still Not Profitable?
- Texas Set For Another Oil BoomThe positive oil fundamentals of the global oil market can easily support an oil price ranging from $70-$75 a barrel in 2018. If similar positive market conditions continue into 2019, then we can see oil prices rising to $80/barrel or even higher in 2019 and hitting $100 or higher by 2020. A $70/barrel will be the for for Brent oil prices in 2018.Citizen Oil on January 30 2018 said:
Prices will also be supported by a fast re-balancing of the market and also by an understanding between Saudi Arabia and Russia to maintain the OPEC/non-OPEC production cut agreement well beyond 2018 with some adjustments to reflect changing market conditions.
On the supply side, the global oil market will ignore exaggerated claims by the EIA and IEA about US shale oil production averaging 10.3 million barrels a day (mbd) in 2018 and rising to 11 mbd by 2019. My projection for US shale oil production in 2018 is 9.25 mbd made up of 5.10 mbd of shale oil and 4.15 mbd of conventional oil. My projection allows for a 5% depletion in US conventional wells.
The oil price has to rise beyond $100/barrel before one can talk about a price correction. I have always expressed the view that a fair price is $100-$130/barrel. Such a price will provide a great impetus to the global economy.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, LondonThe daily oil prediction nonsense. Wasn't it just a few months ago the daily nonsense was "lower for longer" LOL Haven't heard that one for a while. Predictions we'd be in a $ 40 to $ 50 oil environment for years if not decades . Oh yeah, then we'd be at $ 10 when everyone drives an EV.
Feb 02, 2018 | oilprice.comtoo much hype surrounding U.S. shale from the Saudi oil minister last week, a new report finds that shale drilling is still largely not profitable. Not only that, but costs are on the rise and drillers are pursuing "irrational production."
Riyadh-based Al Rajhi Capital dug into the financials of a long list of U.S. shale companies, and found that "despite rising prices most firms under our study are still in losses with no signs of improvement." The average return on asset for U.S. shale companies "is still a measly 0.8 percent," the financial services company wrote in its report.
Moreover, the widely-publicized efficiency gains could be overstated, at least according to Al Rajhi Capital. The firm said that in the third quarter of 2017, the "average operating cost per barrel has broadly remained the same without any efficiency gains." Not only that, but the cost of producing a barrel of oil, after factoring in the cost of spending and higher debt levels, has actually been rising quite a bit.
Shale companies often tout their rock-bottom breakeven prices, and they often use a narrowly defined metric that only includes the cost of drilling and production, leaving out all other costs. But because there are a lot of other expenses, only focusing on operating costs can be a bit misleading.
The Al Rajhi Capital report concludes that operating costs have indeed edged down over the past several years. However, a broader measure of the "cash required per barrel," which includes other costs such as depreciation, interest expense, tax expense, and spending on drilling and exploration, reveals a more damning picture. Al Rajhi finds that this "cash required per barrel" metric has been rising for several consecutive quarters, hitting an average $64 per barrel in the third quarter of 2017. That was a period of time in which WTI traded much lower, which essentially means that the average shale player was not profitable. Not everyone is posting poor figures. Diamondback Energy and Continental Resources had breakeven prices at about $52 and $37 per barrel in the third quarter, respectively, according to the Al Rajhi report. Parsley Energy, on the other hand, saw its "cash required per barrel" price rise to nearly $100 per barrel in the third quarter.
A long list of shale companies have promised a more cautious approach this year, with an emphasis on profits. It remains to be seen if that will happen, especially given the recent run up in prices. But Al Rajhi questions whether spending cuts will even result in a better financial position. "Even when capex declines, we are unlikely to see any sustained drop in cash flow required per barrel due to the nature of shale production and rising interest expenses," the Al Rajhi report concluded. In other words, cutting spending only leads to lower production, and the resulting decline in revenues will offset the benefit of lower spending. All the while, interest payments need to be made, which could be on the rise if debt levels are climbing.
One factor that has worked against some shale drillers is that the advantage of hedging future production has all but disappeared. In FY15 and FY16, the companies surveyed realized revenue gains on the order of $15 and $9 per barrel, respectively, by locking in future production at higher prices than what ended up prevailing in the market. But, that advantage has vanished. In the third quarter of 2017, the same companies only earned an extra $1 per barrel on average by hedging. Part of the reason for that is rising oil prices, as well as a flattening of the futures curve. Indeed, recently WTI and Brent have showed a strong trend toward backwardation -- in which longer-dated prices trade lower than near-term. That makes it much less attractive to lock in future production.
Al Rajhi Capital notes that more recently, shale companies ended up locking in hedges at prices that could end up being quite a bit lower than the market price, which could limit their upside exposure should prices continue to rise.
In short, the report needs to be offered as a retort against aggressive forecasts for shale production growth. Drilling is clearly on the rise and U.S. oil production is expected to increase for the foreseeable future. But the lack of profitability remains a significant problem for the shale industry.
Jan 30, 2018 | www.nakedcapitalism.com
Riyadh-based Al Rajhi Capital dug into the financials of a long list of U.S. shale companies, and found that "despite rising prices most firms under our study are still in losses with no signs of improvement." The average return on asset for U.S. shale companies "is still a measly 0.8 percent," the financial services company wrote in its report.
Moreover, the widely-publicized efficiency gains could be overstated, at least according to Al Rajhi Capital. The firm said that in the third quarter of 2017, the "average operating cost per barrel has broadly remained the same without any efficiency gains." Not only that, but the cost of producing a barrel of oil, after factoring in the cost of spending and higher debt levels, has actually been rising quite a bit.
Shale companies often tout their rock-bottom breakeven prices, and they often use a narrowly defined metric that only includes the cost of drilling and production, leaving out all other costs. But because there are a lot of other expenses, only focusing on operating costs can be a bit misleading.
The Al Rajhi Capital report concludes that operating costs have indeed edged down over the past several years. However, a broader measure of the "cash required per barrel," which includes other costs such as depreciation, interest expense, tax expense, and spending on drilling and exploration, reveals a more damning picture. Al Rajhi finds that this "cash required per barrel" metric has been rising for several consecutive quarters, hitting an average $64 per barrel in the third quarter of 2017. That was a period of time in which WTI traded much lower, which essentially means that the average shale player was not profitable.
Not everyone is posting poor figures. Diamondback Energy and Continental Resources had breakeven prices at about $52 and $37 per barrel in the third quarter, respectively, according to the Al Rajhi report. Parsley Energy, on the other hand, saw its "cash required per barrel" price rise to nearly $100 per barrel in the third quarter.
A long list of shale companies have promised a more cautious approach this year, with an emphasis on profits. It remains to be seen if that will happen, especially given the recent run up in prices.
But Al Rajhi questions whether spending cuts will even result in a better financial position. "Even when capex declines, we are unlikely to see any sustained drop in cash flow required per barrel due to the nature of shale production and rising interest expenses," the Al Rajhi report concluded. In other words, cutting spending only leads to lower production, and the resulting decline in revenues will offset the benefit of lower spending. All the while, interest payments need to be made, which could be on the rise if debt levels are climbing.
One factor that has worked against some shale drillers is that the advantage of hedging future production has all but disappeared. In FY15 and FY16, the companies surveyed realized revenue gains on the order of $15 and $9 per barrel, respectively, by locking in future production at higher prices than what ended up prevailing in the market. But, that advantage has vanished. In the third quarter of 2017, the same companies only earned an extra $1 per barrel on average by hedging. Related: The Unstoppable Oil Rally
Part of the reason for that is rising oil prices, as well as a flattening of the futures curve. Indeed, recently WTI and Brent have showed a strong trend toward backwardation -- in which longer-dated prices trade lower than near-term. That makes it much less attractive to lock in future production.
Al Rajhi Capital notes that more recently, shale companies ended up locking in hedges at prices that could end up being quite a bit lower than the market price, which could limit their upside exposure should prices continue to rise .
In short, the report needs to be offered as a retort against aggressive forecasts for shale production growth. Drilling is clearly on the rise and U.S. oil production is expected to increase for the foreseeable future. But the lack of profitability remains a significant problem for the shale industry.
Jan 30, 2018 | peakoilbarrel.com
Cats@Home x Ignored says: 01/25/2018 at 7:53 pmThe Dark Side of America's Rise to Oil SuperpowerRobert G. Valiant x Ignored says: 01/25/2018 at 8:38 pm
By Javier Blas
The last time U.S. drillers pumped 10 million barrels of crude a day, Richard Nixon was in the White House. The first oil crisis hadn't yet scared Americans into buying Toyotas, and fracking was an experimental technique a handful of engineers were trying, with meager success, to popularize. It was 1970, and oil sold for $1.80 a barrel.
Almost five decades later, with oil hovering near $65 a barrel, daily U.S. crude output is about to hit the eight-digit mark again. It's a significant milestone on the way to fulfilling a dream that a generation ago seemed far-fetched: By the end of the year, the U.S. may well be the world's biggest oil producer. With that, America takes a big step toward energy independence.
The U.S. crowing from the top of a hill long occupied by Saudi Arabia or Russia would scramble geopolitics. A new world energy order could emerge. That shuffling will be good for America but not so much for the planet.
For now, though, the petroleum train is chugging. And you can thank the resilience of the U.S. shale industry for it.
What didn't kill shale drillers made them stronger. The survivors have transformed themselves into leaner, faster versions that can thrive even at lower oil prices. Shale isn't any longer just about grit, sweat, and luck. Technology is key. Geologists use smartphones to direct drilling, and companies are putting in longer and longer wells. At current prices, drillers can walk and chew gum at the same time -- lifting production and profits simultaneously.
Fracking -- blasting water and sand deep underground to free oil from shale rock -- has improved, too. It's what many call Shale 2.0. And it's not just the risk-taking pioneers who dominated the first phase of the revolution, such as Trump friend Harold Hamm of Continental Resources Inc., who are benefiting from the surge. Exxon Mobil Corp., Chevron Corp., and other major oil groups are joining the rush. U.S. shale is "seemingly on steroids," says Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. "The market remains enchanted by the ability of shale producers to adapt to lower prices and to continue to grow."To infinity, and beyond.Mike x Ignored says: 01/25/2018 at 9:18 pmThis feller used 'hype' because there is likely no word for bullshit in Farsi: https://oilprice.com/Energy/Energy-General/Saudi-Oil-Minister-Tired-Of-Shale-Hype.html .shallow sand x Ignored says: 01/25/2018 at 11:34 pm
https://www.oilystuffblog.com/single-post/2018/01/25/Cartoon-Of-the-WeekGeez Mike, your link to the oilprice.com story will surely bring Texas Tea back. Upsetting the oil minister of KSA is the ultimate sign of victory to the shale/political types.
These shale guys are bound and determined to kill the oil price rally, and IEA and EIA (which BTW in my opinion are both very political organizations) are really boosting it too.
I know you feel you have a short window, but hang in there. The current price is pretty good for "us types" and maybe it will hold between here and $55 WTI for the downside, while we blow through 10 million and 11 million, all the while thinking, just like 1970, that USA has unlimited supplies of oil.
I am starting to think the dollar is the key anyway. It was weak in 2011-2014, and oil was sky high. Might be headed that way again, who knows.
Really enjoying all of the history on Oilystuff. Keep it coming!
Jan 30, 2018 | peakoilbarrel.com
Energy News: 01/29/2018 at 7:22 am2018-01-29 Chatham House Events – Iraqi Oil Minister confident that an oil export capacity of five million barrels per day will be realized by the end of 2018 – a "landmark in the oil industry"
Current Iraqi oil reserves of 153 billion barrels due to reach 175 billion in the coming years, says oil minister Luaibi at Annual MENA (Middle East & North Africa) Energy conference
Iraq's oil minister Luaibi said the country seeks to ramp up refining capacity and reduce imports of refined products :"I am determined that Iraq will become a product exporter instead of product importer".
Jan 21, 2018 | peakoilbarrel.com
John x Ignored says: 01/18/2018 at 9:12 pmWill be interesting to see US shale production in response to increasing frac hits, increasing costs, mounting debt wall. These are all legitimate issues which IEA seems to overlook when issuing rosy predictions. Three Stooges thought they could repair a hole in a pair of pants by cutting it out .same logic as IEA.Guym x Ignored says: 01/19/2018 at 5:20 pmYeah, it's those items and more. The biggest they overlook is declines from production. The past two years, they have concentrated in sweet spots, to keep their chins above water. In doing so, they have miraculously brought production back up to 2015 highs, and not much more, although the EIA is reporting imaginary oil. Underneath all that production, wells are declining at a rapid rate. The biggest rates are what they drilled last year. Those wells will produce less than half of what they produced last year. So, how many wells would need to be completed to increase production over a million barrels in 2018? More than current capacity, that's for sure.Dennis Coyne x Ignored says: 01/19/2018 at 6:40 pmHi Guym,Guym x Ignored says: 01/19/2018 at 7:48 pm
Although tight oil output has increased at an annual rate of close to 1000 kb/d over the past 12 months (Dec 2016 to Nov 2017), I doubt that rate of increase will continue, probably about half that unless oil prices rise more than I expect (and I expect we might get to $85/b by Jan 2019).I'd say it's a crap shoot as to whether it goes up, or down with about the same number of completions in 2018 as 2017. Ok, let's say we have more completions, I still can't say it will go up 500k barrels. While people place statistics on depletion rates, I haven't seen a well, yet, that can comprehend statistics. As a matter of fact, they defy statistics.
There are 180k producing wells in Texas. There were about 5400 completions in 2017. That's about 3% of total producing wells.
Jan 20, 2018 | peakoilbarrel.com
Stephen Hren: 01/20/2018 at 10:55 amI believe the oil price will be extremely volatile over the coming decade. There are major developments in both the supply and demand for oil that are very independent of each other and unlikely to move in tandem, with the likely result that there will be ebbs and flows of both supply and demand that have little relationship to one another, causing wild price swings.
I would summarize these as follows:
SUPPLY: The development of medium- and long-term supply appears to be severely curtailed by fracking and a limited supply of suitable sites for new exploration. CEOs are likely worried that any developments will not be profitable because shale will overproduce and knock down prices again. Until a clear picture of this phenomenon is apparent, it will curtail the willingness of oil companies to tackle bigger and more expensive projects. Possible new medium-term supply appears to exist in Mexico's Gulf, Guyana, South China Sea, off-shore Brazil, Canadian Tar Sands, possibly the Arctic. The problem with developing these resources is fracking.
Fracking leads to a quick hit of oil, based primarily on debt infusion, that quickly dissipates – hence I like the term "frack cocaine". It prioritizes rapid expansion of oil supply in the short term to the detriment of medium and long term investments. What Wall Street giveth, Wall Street can also taketh away. The shale oil industry has a similar profile to developing countries like Mexico in 1994 and Argentina in 2005. The flow of money can halt abruptly, and the consequences could be disastrous. The short-term oil will quickly go away, but the investments for serious longer term oil supply will likely be too little, possibly much too little.
Political trouble will likely lead to disruptions in Venezuela, Nigeria, and Libya. The cold war between Iran and KSA will likely remain cold, but if proxy wars get out of hand, massive oil supply disruptions will likely ensue.
DEMAND: The outlook for short and medium term demand is quite good. Global growth is strong, and entrenched systems of car production that favor ICEs will continue. Longer term, EVs and self-driving EVs in terms of taxi systems pose serious threats (perhaps least of all to the US, where distances tend to be longer, density is lower, and gas taxes are cheapest). GM is deploying self-driving cars as a taxi service next year based on the EV Bolt. Developing countries have a big incentive to embrace this technology for their populations: small diesel engines that primarily power scooters and taxis and larger bus engines lead to horrible air pollution, and electricity can be generated within borders rather than imported (whether by coal, gas, wind or solar doesn't matter, so far as oil demand is concerned). Europe's love affair with diesel cars is over and gas taxes (and parking prices) remain high, making EVs and EV-based taxi services very appealing. Battery technology is about to enter a new wave, with solid-state lithium ion batteries that are basically dendrite-free (hence much longer life), super-safe, easier to charge, and 2-3 times the range of current technologies now in production. Specifically I am looking at Toyota, who has promised such a vehicle by 2022. All other manufacturers better be able to match Toyota by then or very soon after, or they will leave everyone in the dust just like they did with hybrids. Lithium-based batteries and lithium itself could see major price swings based on this rapid increase in demand.
Or, of course, the global economy could fall off a cliff at any moment. Fwiw, I see a price range for oil over the next decade as between $25-$250, with very little pattern to its rise and fall. Volatility will be key. Oil may peak and fall several times based on fracking and other short-term trends – a very bumpy plateau. I reckon by 2030 the peak in oil will be obvious, although some will call it from supply while others will call it from demand, based on their preferences. By that date, little to no investment in oil will likley make financial sense, and it will begin to whither away as a global industry. This will be from a combination of reduction in demand due to an EV technological wave that will unstoppable by then, and political collapse that occurs in the interim in countries heavily depending on exporting or importing oil.
Should be an interesting decade!
Jan 19, 2018 | peakoilbarrel.com
x says: 01/19/2018 at 9:55 amRon is absolutely right about the creaming issue. Major oil producing countries, Saudi Arabia chief among them, are using technology to stave off production declines. These YouTube videos are a perfect example of the extreme lengths being employed to continue production:Michael says: 01/19/2018 at 10:12 am
These videos underscore how uniquely valuable oil is as an energy source and how no other substitute will ever come close to matching its utility.
When the decline kicks in, these technologies will ensure that the cliff will be steeper. While I believe we are living at the absolute peak of world production and that decline will kick in soon, I'm not so concerned about specific predictions. It will happen soon enough and when it does the impact will be severe.
I think of this problem in personal terms -- my son was born in 2000. He will live to see a world of diminishing oil production (as well as sea level rise, resource conflicts, and many other problems). Does anyone doubt that by the time he is 30 (2030) world oil production will be in decline? Does anyone doubt by the time he is 50 (2050) the world will be a drastically different place than it is today? I have lived through the peak period. I cannot envision what comes after. I can only hope that my son finds a way through it.
"Does anyone doubt that by the time he is 30 (2030) world oil production will be in decline? Does anyone doubt by the time he is 50 (2050) the world will be a drastically different place than it is today?"
Perhaps. But such sentiments were very common ten, fifteen years ago, and they were directed toward today, not 2030. So, yes, I do "doubt" it, but that's not saying much, as it's a subject I find interesting but useless to speculate about.
I'm checking in here for the first time in about 9 years. I'm an old-time peaker, who jumped ship in 2009 when it became clear the dire predictions of Campbell, Deffeyes, et al., were failing to materialize.
This doesn't mean I think oil is infinite or anything. I do think our capacity to predict doom is much more circumscribed than our abilities to avoid it.
(I like the new editing feature on this site.)
Jan 16, 2018 | peakoilbarrel.com
SouthLaGeox Ignored says: 01/12/2018 at 7:11 pmInteresting BOEM report attached – their prediction of GOM oil and gas production from 2018-2027.George Kaplan x Ignored says: 01/13/2018 at 3:14 am
They predict oil production will increase from 1.65-1.67 mmbopd in the 2017-2019 window to 1.74-1.77 mmbopd in the 2023-2027 time frame. They include future production from current reserves, contingent resources and undiscovered resources. Contingent resources are mainly field expansion projects, new fault blocks, new reservoirs, and resources from discoveries that have not been put on production.
They have initial production from undiscovered resources occurring already in 2019 – suggesting that a few discoveries will be made and be on line by the end of 2019. Seems rather ambitious even for subsea tiebacks.
Given the lack of GOM exploration success in the last few years, my biggest challenge to these predictions are their estimates of production coming from new discoveries. They show about 1 BBO of production comes from currently undiscovered resources in this 10 year window.
https://www.boem.gov/BOEM-2017-082/SLG – hope you are well and had a good holidays. Here is my updated effort at the same thing. I've added some new discoveries, but not as big or developed as fast BOEM show. I've included all qualified fields as named entries except a few discovered in 2016 and 2017, and for a lot I've had to make guesses for reserves based on the expected development size (numbers in brackets show nameplate capacity). I might be able to improve things a bit when BOEM reserve numbers for end of 2016 come out, but it's still not going to look much like their estimates. It's noticeable that there's a lot of activity in short term, small tie backs now – but these only add about 5 to 10 kbpd and immediately start to decline. So like you I don't know where they are getting such high contingent resource production additions from unless it is all on existing developments – I guess if a lot of fields get to grow like Mars-Ursa has and Atlantis might this year then there'd be enough, but that seems unlikely to me, especially at the rate they show it.SouthLaGeo x Ignored says: 01/13/2018 at 8:47 am
Thanks George, and same to you for the new year.George Kaplan x Ignored says: 01/13/2018 at 11:53 am
I've made a stab at comparing numerous production profiles for the 2018-2027 window – your's from above, my midcase and downside estimates from a little over a year ago, and BOEM's estimates – both their total estimate, and their total estimate minus any new resources/discoveries.
I plan to expand on this in a future post – including revised EUR estimate ranges.
They are all models with something worthwhile to add to the discussion, which is not what I would say about the EIA projections. They just add have some kind of growth rate, with no basis in actual numbers, and make it look fancy by adding a hurricane effect – and yet this is the number usually quoted in the MSM. I think their predictions a couple of years ago had an exit rate for this year of 2.2 mmbpd – miles off, and when they do try to provide bottom up justification they look ridiculously ill informed.Fernando Leanme x Ignored says: 01/15/2018 at 4:49 am
Maybe they have a higher oil price forecast? Or they don't bother to see if what gets put on line is worth developing? I know this is hard, but try preparing a forecast with prices increasing 3% per year above inflation for 30 years, and you will get a higher forecast.Dennis Coyne x Ignored says: 01/15/2018 at 10:28 amhttps://www.eia.gov/outlooks/aeo/data/browser/#/?id=12-AEO2017®ion=0-0&cases=ref2017&start=2015&end=2030&f=A&linechart=ref2017-d120816a.3-12-AEO2017&sourcekey=0 \
The BOEM probably uses the EIA AEO 2017 reference price forecast.
Jan 13, 2018 | www.thedailyeconomist.com
According to one source out of the Far East, China's Yuan denominated oil contract is set to go live for trading on Jan. 18.
While not an official date announced from government sources, according to an anonymous member of the Futures market where the new oil contract will trade, this is the expected date for Beijing to begin its latest challenge to the long-standing Petrodollar system.According to the Shanghai-based news portal Jiemian, which cited an unidentified person from a futures company, trading is expected to start Jan. 18. Multiple rounds of testing have been carried out and all listing requirements met. The State Council, China's cabinet, was said to have given its approval in December, one of the final regulatory hurdles. The push for oil futures gained impetus in 2017 when China surpassed the U.S. as the world's biggest crude importer. - ZerohedgeWhile the Chinese markets are not expected to immediately take dominion over the West's Brent and WTI oil markets, several countries which include Venezuela, Russia, Qatar, Pakistan, and perhaps even Iran appear ready to transition away from dollar based oil trade. Additionally, many more nations will likely be willing to dip their toes into this market as it proves itself to be a viable alternative to dollar hegemony, and as protection from foreign policy threats from the U.S. which often uses the dollar as leverage in economic sanctions.
Jan 11, 2018 | oilprice.com
Ed Morse of Citi says that Venezuela's production could fall below 1 mb/d , which would essentially be a loss of 700,000 bpd by the end of the year.
The losses from Venezuela, combined with potential outages in Iraq, Libya and Nigeria, could reach 3 mb/d in 2018, Citi said .
Jan 11, 2018 | oilprice.com
Busting The Five Biggest Oil Market Myths
By ZeroHedge - Jan 09, 2018, 3:00 PM CST
The oil market has come to be defined by several narratives over the past couple of years: market rebalancing, OPEC versus shale, Russia's delicate relationship with OPEC, OPEC's conformity with production cuts with the latest deal extension running to end of 2018 and shale's resilience to lower prices.
But these frameworks have created a narrow ideology that could harm the way producers participate in the oil market this year and beyond.
Myth 1: OPEC's exit strategy means exit
The idea that the 24 producers who came together and struck a deal to cut production by 1.8 million b/d in November 2016 are somehow going to 'exit' the alliance later this year is misleading. There will be no exit when OPEC, Russia and other non-OPEC producers decide the market has rebalanced -- based on OECD stock levels reaching their five-year average -- rather a continuation of the grand alliance under amended, and most probably looser, terms.
OPEC's hands are somewhat tied: unwind from the deal and undo all the good work achieved, and so it must continue managing the market in another guise to create stability and encourage long-term investment in oil.
Gary Ross at Platts Analytics has been talking of cuts "into perpetuity" since the historic deal was made and informed industry sources note that the exit strategy is the wrong phrase to be using. But while there is uncertainty as to what that new agreement will look like, the market will anxiously hang on to the exit strategy term and these jitters could serve to keep an ultimate cap on prices.
Myth 2: OPEC's top priority is market rebalancing
Market rebalancing may be the measure, backwardation may be the means but price is the ultimate goal.
When prices tanked after a nine-month extension was agreed in May 2017, there was clear disappointment from OPEC sources even if publicly the whims of the market were dismissed and ministers anxiously waited for prices to recover in the medium term.
The difficulty with a price target is that nobody knows what an optimal long-term sustainable price is so the goal posts keep shifting. Besides, different price levels create new supply-demand dynamics and the price may be influenced by more than just underlying fundamentals such as geopolitical risk.
Related: Is This The Beginning Of An Oil Sands Revival?
Thus, for now OPEC's clumsy priority is market rebalancing. It just needs remembering that bringing down the more than 100 million barrels in stocks to its five-year average could prove elusive given the oversupply in recent years.
There is also the flipside risk in which OPEC tightens too much. Indeed, Saudi Arabia oil minister Khalid al-Falih has admitted that OPEC may need a more concrete goal at its June meeting and when it alters its market management strategy it may well coincide with a new long-term target.
Myth 3: Russia will end its alliance with OPEC
Russian oil companies have begrudgingly stayed on board with the deal due to the iron hand of President Vladimir Putin and steely determination of oil minister Alexander Novak.
Russia is not so at ease with ongoing market management and the fanfare and media circus that surrounds OPEC. Russia also arguably needs the extra revenue less and is more worried about losing market share in Europe and Asia to competition from rising U.S. shale oil exports. But the growing political nexus between Russia and Saudi Arabia, Russia's increasing swagger as joint head of this broad OPEC alliance (as noted at the November 30 meeting in Vienna with everyone awaiting Novak's arrival) as well as the budgetary need for sustained higher prices means Russia could well be in it for the long haul.
Putin is keenly aware of the U.S.-Saudi ties and has been building relations with Saudi Arabia since 2007 when it offered the kingdom nuclear aid.
Indeed, the overriding concern for the world's biggest oil producer is that, should the agreement unravel, prices could plunge putting the country back at ground zero. It may be an inconvenient truth for both, but to wield the necessary global energy influence, OPEC and Russia need each other indefinitely.
Myth 4: The battleground is OPEC versus U.S. shale
Ever since OPEC did an about-turn on its pump-at-will strategy and started working on a market share approach that was first brokered in Algiers in September 2016, the battle between OPEC and shale has been exaggerated. What may have started out as a move to crush U.S. shale in 2014 has transformed into a broader coexistence at the end of 2017 in a bid to find an equilibrium that allows profits to be made and coffers to be filled by all producers.
(Click to enlarge)
There has been growing dialogue between U.S. frackers and the oil producer group.
It could be argued that OPEC's first mission was to stop the runaway train that was OPEC output as producers ramped up production month on month as competition intensified. It could also be argued that the real target for OPEC is still unconventional and uneconomic oil as once investment becomes a free for all, OPEC risks a repeat of an oil boom and bust and the volatility it is trying to guard against. But at what point will deepwater, oil sands and Arctic drilling in general become economic enough to persuade investors to commit?
For example, the U.S. deepwater Gulf of Mexico sector has struggled since crude dropped in late 2014, but costs have dropped and efficiencies improved, and analysts suggest the sector may be at a turning point if prices are maintained.
Myth 5: U.S. shale is simply resilient
U.S. shale producers may well be predicted to make capex gains in 2018, they may have made technological innovations in drilling and completions that have brought down costs and they may have adapted to a lower price environment. In fact, Platts Analytics predicts a U.S. shale production growth of 900,000 b/d in 2018. But, despite all this, a productivity inflection point may well have been reached, a crossroads for investors.
(Click to enlarge)
Cyclical cost efficiencies and geological productivity are beginning to unwind with a combination of inflation and a broadening from the sweetest spots and core acreage.
Related: China Is About To Shake Up Oil Futures
In the Permian, rig efficiency peaked in July 2016 according to the EIA, and has since consistently decreased, while the Eagle Ford and Anadarko (Woodford) plays have experienced a significant drop-off in rig productivity. Moreover, investors want a return on their capital and have tired of capturing resources without seeing value being maximized. For almost a decade, the U.S. exploration and production industry has outspent its cash flows in drilling costs, requiring a constant inflow of debt and equity financing to keep going.
With prices back above $60 a barrel, can investors make a healthy sum? With the biggest producers now the oil majors, their shareholders may prefer returns over market share.
By Paul Hickin via Zerohedge
Jan 09, 2018 | peakoilbarrel.com
Mike: 01/08/2018 at 7:34 amThe shale oil industry is NOT profitable. It never has been and in general terms it will not be in 2018 either. There has always been something fishy about its funding, particularly when wanders like this guy can make $16M a year in compensation, while his company looses money year over year for stock holders.
Clearly, however, it is not his fault his company can't be profitable and it is not their fault they are "forced" to borrow all that money
Anadarko's Al Walker Says US Shale Is An Alcoholic And Investors Are 'A Problem'As we've noted on too many occasions to count, this is aiding and abetting a situation where these companies effectively sow the seeds of their own demise. They're running up the down escalator. They're working their asses off to drive down the price of the very commodity they're producing.
And hilariously, they think maybe you're the problem. Here's the Journal again:
"The biggest problem our industry faces today is you guys," Al Walker, chief executive of Anadarko Petroleum Corp. , told investors at a conference last month.
Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: "It's kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline."
Even if companies cut back on drilling now, it wouldn't be enough to stop a new wave of oil from hitting the market in the second half of the year : U.S. shale output typically lags behind new drilling by four to six months, analysts say.
Shale companies are on track to spend $20 billion more than they will generate in the next six months if prices hover around $40 a barrel, analysts say.
Compensation practices play a role in the behavior of U.S. shale producers: Most of their management teams are paid based on growth or adding new oil and gas reserves -- not on profits -- according to Matt Portillo, an analyst at Tudor Pickering Holt & Co., in Houston. "Until that changes, growth may continue to prevail," he said.
Isn't that last bit about executive compensation great?
So folks like Al Walker are paid based not on profits, but on growth, and that growth is funded by investors like you.
So if you connect the dots there, it means you are literally giving these management teams money to fund the growth that ends up boosting their compensation, and that growth is going to ultimately bankrupt the companies you're investing in by creating a supply glut.
Welcome to the shale industry, goddammit. Enjoy your stay.
Jan 09, 2018 | www.reuters.com
Oil rose further above $68 a barrel on Tuesday, touching its highest since May 2015, supported by OPEC-led production cuts and expectations U.S. crude inventories fell for an eighth week.
Jan 08, 2018 | peakoilbarrel.com
shallow sand x Ignored says: 01/05/2018 at 6:36 amEvery article on oil prices in the last several months says the ONLY downside is US shale.Mike x Ignored says: 01/05/2018 at 6:47 am
Do the larger US shale companies pay attention to supply/demand dynamics at all? At current prices most can show positive EPS, assuming service costs do not surge too much?
For example, auto manufacturers do not produce the maximum vehicles possible. They pay attention to supply and demand. Almost every single manufacturer tries to forecast demand for its product.
Even farmers try to grow what crops are in most demand and raise what livestock is most in demand.
We have not drilled a well in over 3 years due to lack of oil demand, our production has fallen.
So, we will see.Shallow, here you go: https://www.forbes.com/sites/daneberhart/2018/01/04/revenge-of-the-oil-services-sector-in-2018/#25e1060569e9 maybe this, rising interest rates, and fresh water issues in 2018 in arid West Texas will slow the bastards down a little and help give us some price stability.Longtimber x Ignored says: 01/05/2018 at 2:14 pm"Rystad Energy is even bullish on American oil. The Norwegian firm sees U.S. crude output hitting 11 million barrels per day by December, narrowly surpassing global leader Russia and OPEC kingpin Saudi Arabia."Guym x Ignored says: 01/05/2018 at 7:11 pm
y MAD MAD MAD Mad 2018 world. Just drive down and dig it up, dig it all up.
https://www.youtube.com/watch?v=w00Kab17aeIAbsolute poppycock! US output will do good to get to the level that EIA is currently reporting, about 9.75 by the end of 2018. Mike's post explains why. 11 million barrels a day,? Man, that is some potent stuff they are smoking.likbez says: 01/07/2018 at 7:30 pmshallow sand,
>Do the larger US shale companies pay attention to supply/demand dynamics at all?
> At current prices most can show positive EPS, assuming service costs do not surge too much?
This might be a wrong question. The right question IMHO is: "To what extent shale companies are just prostitutes of Wall Street and to what extent they are independent oil production companies? "
What if the key role for such companies is to be a part of "price crasher" mechanism (along with "naked shorts" and similar financial chicanery) ?
I believe that with the shale boom it is Wall Street that obtained mechanism using which they can dictate oil prices.
Not Saudies or OPEC in general but Wall Street titans are now in the driving seat, although OPEC and Russia are fighting back by limiting production.
And Wall Street is not shy to step on the throat of "conventional" oil producers and force them to produce with no or even negative margins because of the specific of oil industry.
When you gets so much money on such lenient conditions something is fishy This dual production mode (oil plus junk bonds and evergreen loans) looks to me just a variable of "subprime housing boom" on a new level.
Jan 08, 2018 | peakoilbarrel.com
HVACmanx Ignored says: 01/05/2018 at 5:23 pmCarrying over from islandboy's EIA thread:Boomer II x Ignored says: 01/05/2018 at 11:20 pm
From post above:
TRUMP PROPOSES VAST EXPANSION OF OFFSHORE DRILLING
(Zinke) "This is a start on looking at American energy dominance,"
Regardless of emotional reaction to this announcement, I am skeptical of its viability.
My skeptical mind tells me, when all else fails, look at the numbers. The numbers per MMS chart on Wikipedia:
Undiscovered technically-recoverable oil resources on the outer continental shelf, 2006:Washington/Oregon – 0.4Bbo Nor Cal – 2.08 Bbo Central Cal – 2.31 Bbo So Cal – 5.74 Bbo All Atlantic + east FL – 3.84 Bbo GOM – 44.92 Bbo North Slope – 23.6 Bbo Alaska less NS – 3.0 Bbo
Total 85.88 Bbo
I conclude that most of the "new" oil unleashed by this stunning decision is in the GOM and and the North slope, both of which are well-known by the industry and which have been open to Federal leases in the past. After Shell's bad experience, oil will take a much higher price to get any bids for the NS and for the GOM, this is just BAU. The Atlantic and Pacific Coasts don't have enough resource to be worth exploring, much less leasing.
OK, there are some sharp oil people here on the forum and I'm just a dumb HVAC engineer. Help me. Am I missing something? Are they actually going for the natural gas, and is it worth going after?Either Trump and his energy folks are so determined to stick it to environmentalists that they are willing to hurt the industries they claim to help, or they know this won't amount to anything but it will impress their hardcore supporters.shallow sand x Ignored says: 01/06/2018 at 12:10 amI sincerely doubt most states will cooperate with allowing all the shoreline and shallow water infrastructure needed to replicate the GOM.Greenbub x Ignored says: 01/06/2018 at 7:24 pm
Can anyone see FL allow pipelines running to tank farms located on the shoreline?
I understand the states control from the shore to 3 miles out.
If I am wrong, please point out how.Shallow, you aren't kidding about these reckless frackers:Mike x Ignored says: 01/06/2018 at 6:57 am
http://thehill.com/blogs/blog-briefing-room/367780-michael-moore-says-hes-going-to-frack-off-coast-near-mar-a-lagoI believe that is a good summary HVAC, as is Boomers suggestion that this offshore development legislation is cursory and an otherwise meaningless gesture made toward an agenda that involves eliminating regulations for the oil and gas industry and "unleashing" America's energy might on the rest of the world.
Always skeptical of "technical recoverable guesses," my suggestion is to focus on product prices instead and the current reduced level of activity in the GOM. Oil prices are volatile because of the fiscally irresponsible, short investment nature of the shale oil industry and offshore development takes years and years to bring to market. There is natural gas coming out of our ears at the moment because of the shale phenomena; the price is tanking back to the mid $2's and there is no place to put anymore gas.
This is another nail in this administrations coffin, from my conservative perspective. It is enraging the environmental left and will help assure the biggest Democratic turnout in history in 3 years.
Then, much like Trump turned over Obama's legislation regarding offshore drilling, this one will be turned over as well. I don't think a 3 year time frame and price volatility gives the offshore industry enough time to do anything with this, personally. Its fluff.
Jan 05, 2018 | oilprice.com
The past week of continuous record low temperatures and snowfall has oil-dependent power plants in the northeast scrambling to secure supplies of some of the dirtiest burning oil available in the market due to an impending supply shortage, according to a new report by Hellenic Shipping News .
Oil fuels 30 percent of the New England power plant market, but winter storms could lead to another foot of snow, making it difficult for tankers or trains to deliver needed commodities, Marcia Blomberg of regional grid operator ISO New England, said.
Oil imports to the East Coast jumped by almost 60 percent last week in anticipation of increased demand due to heating needs. JBC Energy predicts distillate use to increase by 90,000 barrels per day in January and February as well.
The cold weather, expected to become a "bomb cyclone" in the coming days, has also shocked natural gas markets. Extreme cold is cutting production in North Dakota's Bakken, while demand is surging because everyone is turning up the thermostat to stay warm.
Reuters said that gas flowing through interstate pipelines from North Dakota dropped from 1.3 billion cubic feet per day in the week ending on December 25 to just 1 bcf/d as of Tuesday. Texas (-20 percent) Oklahoma (-22 percent) and Pennsylvania (-5 percent) are also reporting weather-related production problems, Genscape data says.
Dec 29, 2017 | peakoilbarrel.com
Energy News says: 12/29/2017 at 11:54 amEIA 914 Survey, October crude oil production 9,637 kb/day, +167 kb/day m/m. September revised down -11 kb/d to 9,470 kb/daydclonghorn says: 12/29/2017 at 12:00 pm
Texas October 3,767 kb/day, September 3,561 kb/day revised down -13 kb/d
Gulf of Mexico October (Hurricane Nate) 1,449 kb/day, September 1,649 kb/day, revised -1 kb/d
https://www.eia.gov/petroleum/production/#oil-tabEIA estimated Texas production at 3767000 bpd vs Dr Dean's above estimate of 3305000 bpd a difference of 462000 bpd. Wow that is a big difference.Dean says: 12/29/2017 at 12:13 pmYes, it is unreal: either at the Texas RRC they had really HUGE problems in the past months collecting data, or the EIA used only model estimates without any form of revision.Dean says: 12/29/2017 at 1:55 pm
The correcting factors of the Texas RRC have not changed much and they showed they usual variability, so that I cannot explain why there is such a big divergence between corrected RRC data and EIA. They only problem that I can think of (on the part of the RRC) is that the hurricane completely disrupted their work: does anyone know whether the offices and data servers of the Texas RRC were damaged during the hurricane? Thanks for the information.I had a very interesting discussion on Twitter: operators in Texas confirmed me that the RRC offices were not affected by the hurricane and data reporting proceeded normally. At this point the only (legal) reason left to explain the divergence is that the EIA has started including NGL into their numbers:
Dec 31, 2017 | peakoilbarrel.com
shallow sand says: 12/31/2017 at 11:20 pmMike.shallow sand says: 01/01/2018 at 8:43 pm
Unless I missed it I am still waiting for TT to explain how he finances the huge AFE's he must routinely get from $10+ million STACK and SCOOP wells.
Was doing some tax work earlier today and noted for June 2017 oil we got $40.71 per barrel. If 12/29/17 close holds we get $56. $15.29 more on every barrel is huge for us as it is for everyone who operates wells Be it you XOM Harold Hamm Russia OPEC etc. As I recall oil prices rebounded in late 2016 then shale went nuts and the price tanked. Their shares tanked too as I recall.
Say TT owns 10% of a shale monster well that cranks out 200K BO in year one. Say his NRI is 8%.
So he got billed $1 million for his part of the well. A $15 higher oil price nets him $240 000 more in year one before deducting severance tax.
So I assume TT would rather get an extra $240 000 in year one and have shale not go crazy talk and crazy drill again as opposed to being able to crow about political crap?
Mike do you know any non-op's on shale wells? How the heck do they finance them?
PS. I know you think it's cold down there in Texas but in my part of the Mid Continent it will be -5 F later tonight. 1 stinking degree F right now. Ouch!!TT. If you came into shale with a lot of rock solid conventional paid for in full I can see how you could come up with the money.Mike says: 01/01/2018 at 8:48 pm
However I am then also sure that you just like us went from making a killing on low decline conventional and $90 oil to making much much less and in your case were using almost all cash to pay for new shale well AFE's.
Even if you have zero debt I assume you at least have an un drawn credit facility just in case a good big deal were to arise. And therefore I assume you were none too pleased when your borrowing base dropped by more than 2/3 from 2014 to 2015 and again another 20+% in 2016 due to shale over production crashing oil and NG prices.
If you are big enough to cash flow several shale AFE I assume you have net production of somewhere between 2 000-10 000 BOEPD?
So let us say 5 000 BOEPD. Again just hypothetical to show what shale did to a larger private independent owned by maybe 2-4 shareholders who got very rich 2005-14.
2014 say you could have cashed out for $500 million. 2016 likely cashed out for 1/3 to 1/4 of that. Quite a hit to the net worth.
Further in 2014 you maybe cleared $90+ million pre income taxes before CAPEX on that 5 000 BOEPD? 2016 that went to $18 million maybe and of course you are getting AFE and JIB on the shale that is draining that the near zero? So no shareholder dividends or distributions in 2015 and 2016 after getting big ones in prior years.
We are small and not in a shale area but we have been around the block Dad has been in since the Arab Embargo. Pretty much everyone had to fire someone in 2015-16 it's good if you didn't. Pretty much everyone had the rug pulled out from under them just like in 1986 and 1998.
Thing is I think even most of the shale guys aren't real happy about shale. They know shale overproduction will drag the price. Same bittersweet deal as farmers growing a bumper crop. Farmers made the most $$ during 2012-13 even though most places 2012 was terrible drought. US commodity producers never do good during periods of oversupply. Just the middle men do good then.
Again I'm just speculating on how you do things numbers etc. I may be all wrong. If I am I apologize.
I just know in 2015 and 2016 there were a ton of shale wells completed that won't payout. Maybe not as many in 2017 but they are still out there. Further they hurt cash flow especially when you cannot control the expense recognition time frames as a non-op.
I am so glad we did not own non-op where drilling was going on 2015-17 as it would have sucked away all our cash and then some plus sold our flush production at market lows.
I am happy to see you want $70 even higher than me. So I'll leave you alone now. Take care. I think maybe deep down you too hope US doesn't ram through 10 and then 11 million BOPD next year?Your 2% production tax in Oklahoma is going back to 7% tee tee; you and Mr. Blackmon are definitely on the same 'mindless' page regarding the future of shale oil: https://www.forbes.com/sites/davidblackmon/2017/12/31/the-oil-and-gas-situation-a-preview-of-2018/#7b9a4fe67613Boomer II says: 01/01/2018 at 9:30 pm
You are insulting to people here who actually understand the basic arithmetic of the oil business a little better than you give them credit for. There is very clear mounting evidence that things are not getting better in your industry they are actually getting worse. You on the other hand seem to struggle with reality. Five days ago gas was trading at $2.55 per MMBTU not $4 and after royalty deductions interest expenses etc. etc. 5 BCF will not come close to paying for a $10-11M well. I understand now that even after 35 years of whatever it is you do you can't insult me anymore than you have already tried. I would have to value your opinion first.
If you want to win friends and influence people here on POB it would be helpful if you were to give us your name your company's name where these awesome wells are so we can check production data and tax roles etc. That would give you credibility and strengthen your arguments. Otherwise you are just a cute name embarrassing as that is to my beloved Texas who likes to brag about how much money he makes in the shale oil business. We're interested in the big picture here not you personally.I still get the feeling that this is a sales job. Why tout the industry doing so great if you don't need investors and lenders?Boomer II says: 01/01/2018 at 2:56 pmI found this. It is from 2016 and it is based on privately held companies. Oil and gas extraction companies was the least profitable industry.Survivalist says: 01/01/2018 at 5:35 pm
I just found the same article for 2017. Oil and gas still tops the list.
https://blogs-images.forbes.com/sageworks/files/2017/09/least-profitable-industries-ttm-07312017.png@TTSurvivalist says: 01/01/2018 at 7:01 pm
Cling to whatever makes you feel good dude. I guess when you're favorite industry produces a lot of product but can't make any profits doing so one has to find the silver lining wherever they can. Shale is a Ponzi scheme. It won't be long until the music stops and the investors lose their shirts.My credentials are irrelevant to the fact that shale oil is a profitless venture. If not for profit then what's it all about? Take a long hard suck on my ass fuck face. Fucking retard.Survivalist says: 01/01/2018 at 7:33 pmshale oil is a profitless venture. Deal with it fuck head.Survivalist says: 01/01/2018 at 7:53 pmHere's one for the Texas teabagger aka the Lone Star State scrotum sucker.Im guessing it didn't go to business school.Lloyd says: 01/01/2018 at 11:28 pmUntil you post a name and a company you can't complain about anyone else's credentials. We know who Mike is. You are nameless likely lying and probably a charlatan. And the emojis prove you are a moron.Lloyd says: 01/02/2018 at 10:57 pmWatcher I didn't say he had to identify himself I just pointed out that he was a hypocrite to demand other people's credentials without presenting his own.Dennis Coyne says: 01/02/2018 at 9:01 am
To the Teabagger I say "Put up or shut up." Though I do prefer "shut up".
-LloydHi Texas TeaSRSrocco says: 01/01/2018 at 10:35 am
I agree with Mike that LTO producers are not profitable (as a group). I have suggested that if oil prices remain under $65/b (WTI price) that US output may increase by about 600 kb/d (average annual C+C output) in 2018 compared to 2017. If oil prices are higher output may be higher if you tell me what that average oil price will be in 2018 I can make a better output estimate.
I also agree with Mike that I do not know what the future oil price will be. Generally higher World output levels result in lower oil prices (as in 2015-2017) and generally lower oil prices result in lower profits for oil companies ceteris paribus.ShallowEnergy News says: 01/01/2018 at 3:24 am
The oil price may improve in 2018. However it will likely go DOWN CONSIDERABLY first before it continues higher. According to the COT REPORT (Commitment Of Traders) there is a record Commercial Short Position against oil going back 23 years.
You will notice right before oil fell from $100 in 2014 there was also a high amount of Commercial Short Positions. Today that level is even higher.
EIA Today In Energy: What are natural gas liquids and how are they used?Energy News says: 01/01/2018 at 4:38 am
Table on Twitter: https://pbs.twimg.com/media/DSarQ0wUEAACODP.jpg
https://www.eia.gov/todayinenergy/detail.php?id=5930#World demand for oil products – JODI Data – As everyone knows January is the seasonal low for demand. Comparing demand in December to January of the next year shows an average drop of -2.2 million barrels per day.Longtimber says: 01/01/2018 at 2:54 pm
Chart on Twitter: https://pbs.twimg.com/media/DScZ25HX4AAdDwB.jpgRather Crude product sort out by molecular weight: WTI is refined to 6% Diesel while global crude average is 34% Diesel.Survivalist says: 01/01/2018 at 8:06 pmOne more for the Texas TeabaggerWatcher says: 01/02/2018 at 12:43 pm
https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limitsGeorge don't want to scroll way up.George Kaplan says: 01/02/2018 at 2:32 pm
Don't suppose you know if oil fields do blending prior to sending to assay? Doesn't seem too very conspiratorial. Someone could gin up a rationale and no one would complain provided the refiner gets the same blend as assayed.Most are blends – i.e. a bunch of producers discharge into a pipeline and what comes out the end is the cargo – it varies a bit depending on the relative flows from each platform and they might have to blend further in the tank farm (e.g. Forties delivers Brent crude I think from 15 to 20 different platforms).George Kaplan says: 01/02/2018 at 3:20 pm
I can only think of one time there might not be blending of some kind which is if an offshore platform with storage (e.g. FPSO) unloads as repeated cargoes which always go to one specific refinery (probably the platform operators – but even then there are usually more than one owner and they often take the cargos separately in proportion to their stake).https://www.researchgate.net/profile/Hassan_Harraz/publication/301842929_BENCHMARKS_OF_CRUDE_OILS/links/572a065b08aef7c7e2c4ede8/BENCHMARKS-OF-CRUDE-OILS.pdfWatcher says: 01/02/2018 at 6:26 pm
This is from 2015/2016 – but prices are still light/sweet -> expensive; heavy/sour -> cheap. The only thing that can mess that up is if there are transport bottlenecks which is why WTI is a bit cheaper than Brent (it wasn't before LTO came on line).
Tapis is still the lightest and costliest although almost none of it is produced it is still a useful benchmark against which other oil can be rated.
Although there are benchmark crudes I think every cargo is basically a negotiated price between the refinery and the producer (there can be penalties if it isn't quite the quality agreed on and it could even be rejected and I think there is an adjustment based on the latest benchmark prices as the contract price would have been negotiated well ahead of delivery). And that is about as much as I know about the trading business except there is a lot of money that can be made and lost on very small margins and variations.
source of interest my recall of Bakken and Eagle Ford assays of yrs ago and how with an increase in API degs reported in the new assays the middle distillate yield hasn't changed. Should not be -- well it's possible but should not be likely.Watcher says: 01/02/2018 at 1:16 pmhttps://www.zerohedge.com/news/2018-01-02/peak-mexicoEnergy News says: 01/02/2018 at 6:06 pmUS implied domestic demand monthly figures – seasonalDennis Coyne says: 01/02/2018 at 6:35 pm
(Finished Motor Gasoline + Finished Aviation Gasoline + Kerosene-Type Jet Fuel + Distillate Fuel Oil + Residual Fuel Oil + Lubricants + Asphalt) but no NGLs
From here: EIA – Finished Petroleum Products – Products Supplied: https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_m_cur.htm
The January dip in demand table on Twitter
Yearly averages & the year over year change. 2017 to Oct.
First chart from comment aboveDennis Coyne says: 01/02/2018 at 6:36 pm
Second chart in link from energy news. Thanks!
Jan 02, 2018 | peakoilbarrel.com
Cats@Home says: 01/02/2018 at 8:04 pmU.S. oil production booms to start 2018
Updated 8:39 AM; Posted 8:39 AM
By The Washington Post
U.S. crude oil production is flirting with record highs heading into the new year thanks to the technological nimbleness of shale oil drillers who have unleashed the crude bonanza.
The current abundance has erased memories of 1973 gas lines which raised pump prices dramatically traumatizing the United States and reordering its economy. In the decades since presidents and politicians have mouthed platitudes calling for U.S. energy independence.
President Jimmy Carter in a televised speech even compared the energy crisis of 1977 to "the moral equivalent of war."
"It's a total turnaround from where we were in the '70s " said Frank Verrastro senior vice president at the Center for Strategic and International Studies.
Shale oil drills can now plunge deep into the earth pivot and tunnel sideways for miles hitting an oil pocket the size of a chair Verrastro said.
The United States is so awash in oil that petroleum-rich Saudi Arabia's state-owned oil and natural gas company is reportedly interested in investing in the fertile Texas Permian Basin shale oil region according to a report last month.
That is a far cry from the days when U.S. production was on what was thought to be an irreversible downward path.
"For years and years we thought we were running out of oil " Verrastro said. "It took $120 for a barrel of oil to make people experiment with technology and that has been unbelievably successful. We are the largest oil and gas producer in the world."
The resilience of U.S. oil producers has come as the price of crude rose above $60 per barrel on world markets. Many shale drillers can start and stop on a dime depending on the world oil price. The sweet spot for shale profit is in the neighborhood of $55 to $60 per barrel.
Dec 21, 2017 | peakoilbarrel.com
George Kaplan, says: 12/21/2017 at 6:55 amhttps://www.rystadenergy.com/NewsEvents/PressReleases/all-time-low-discovered-resources-2017Dennis Coyne, says: 12/21/2017 at 8:14 am
ALL-TIME LOW FOR DISCOVERED RESOURCES IN 2017: AROUND 7 BILLION BARRELS OF OIL EQUIVALENT WAS DISCOVERED
Rystad Energy concluded this week that 2017 was yet another record low year for discovered conventional volumes globally. Less than seven billion barrels of oil equivalent has been discovered YTD.
"We haven't seen anything like this since the 1940s," says Sonia Mladá Passos, Senior Analyst at Rystad Energy. "The discovered volumes averaged at ~550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio* in the current year reached only 11% (for oil and gas combined) – compared to over 50% in 2012."
According to Rystad's analysis, 2006 was the last year when reserve replacement ratio reached 100%; largely thanks to the giant onshore gas field Galkynysh in Turkmenistan.
Not only did the total volume of discovered resources decrease – so did the resources per discovered field.
An average offshore discovery in 2017 held ~100 million barrels of oil equivalent, compared to 150 million boe in 2012. "Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed", says Passos.
I think every drilled high impact wildcat well identified by Rystad at the end of 2016 has now turned out dry, with a couple postponed for lack of finance.
Thanks George.SouthLaGeo, says: 12/21/2017 at 8:38 am
It would be great if they gave the gas/liquids split all rolled up. Does it look to your eyes like a roughly 50/50 gas/liquids split in 2017, as it does to mine? (Talking about Rystad chart.)2017 looks likes another very disappointing year for conventional discoveries. I wonder how unconventional resource adds have been over the last few years. I suspect that is how many of our big oil friends are achieving their annual resource add goals.George Kaplan, says: 12/21/2017 at 8:50 amThe EIA reserves are going to be interesting: even before the price crash the extension numbers, which is where all the LTO growth came from rather than discoveries, were starting to fall and reserve changes looked like they might be going negative, which I'd guess is due to decreases in URR estimates; e.g. below for Bakken.George Kaplan, says: 12/21/2017 at 8:50 am
And EF.George Kaplan, says: 12/21/2017 at 8:54 am
About 50/50, maybe slightly more gas because of the big BP find, which I thought was 2.5Gboe but they have as 2.Dennis Coyne, says: 12/21/2017 at 10:54 amThanks George,George Kaplan, says: 12/22/2017 at 3:22 am
Yes reserves decreased in 2015, probably due (in part) to a fall in oil prices from $59/b in Dec 2014 to $37/b in Dec 2015, the price in Dec 2016 was $52/b, using spot prices from the EIA, so perhaps reserves increased a bit in 2016, it will be interesting to see the 2016 estimate.I think they have to use averages for determining economic recovery not spot prices – I can't remember now if it's six month or annual (or other – I think maybe six months to March and September when they reevaluate) – 2016 would be bout the same or a bit lower depending on the time frame.Dennis Coyne, says: 12/22/2017 at 8:59 amHi George,George Kaplan, says: 12/21/2017 at 6:56 am
I am not sure exactly how it works.
I found this:
Initially, SEC rules required a single-day, fiscal-year-end spot price to determine a company's oil and gas reserves and economic production capability. The SEC Final Rule changes this requirement to a 12-month average of the first-of-the-month prices.
Using this I get
So 2016 reserves should decrease further if prices affect reserves.EIA reserve estimates were due at the end of November, but still haven't appeared, maybe they don't look so good?Dennis Coyne, says: 12/21/2017 at 8:15 amHi George,George Kaplan, says: 12/21/2017 at 6:59 am
Last year it was mid Dec, maybe at the end of the year. Not sure why it takes so long as these are 2016 reserves as of Dec 31, 2016.https://www.rystadenergy.com/NewsEvents/Newsletters/UsArchive/shale-newsletter-december-2017
EMPIRICAL EVIDENCE FOR COLLAPSING PRODUCTION RATES IN EAGLE FORD
We have recently observed strong empiric evidence for the theory that